93 minute read
A month-by-month review of Hong Kong’s
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Hong Kong poised to become ‘Nasdaq of the East’
Hong Kong’s equity market is expected to turn itself into the “Nasdaq of the East,” HSBC Global Research said in a report. This comes as Hong Kong’s stock market is supported by ADR “homecomings” and the primary listing of “unicorns,” leading to a rise in transaction volumes. HSBC said Hong Kong continues to dominate the market in terms of IPO, ranking as the top market seven times in the last 12 years.
10 of HK’s most attractive companies
The Hong Kong Jockey Club emerged as the most attractive company amongst workers in 2021, leaping from fourth place in 2020, Randstad reported. Following The Hong Kong Jockey Club are Cushman & Wakefield and Towngas (The Hong Kong & China Gas Company) in second and third place, respectively. Also amongst the top 10, in this particular order, are Swire Properties, LVMH, HK Electric, Richemont, Morgan Stanley, UBS Bank and J.P. Morgan. Moreover, the 2021 research found drivers for employee value proposition are the company’s financial health, job security, and a good reputation.
How vocational training shapes Hong Kong workforce
The PwC Hong Kong found that vocational and professional education and training (PVET) plays an important role in helping the employability of the youth and in closing the existing skills gap. For one, the study found that VPET providers have significantly enhanced youth employability in the past 20 years. The unemployment rate amongst the younger workers, those aged 1519, declined to 10% in 2019 from 31% in 2002. “The study found out that employees with sub-degree qualifications earned some 30% higher than secondary school leavers, whereas holders of a bachelor’s degree or above qualification had an over 100% salary uplift compared to those with upper secondary qualifications,” PwC reported.
New round of ‘Staycation Delights’ kicks off
The Hong Kong Tourism Board (HKTB) has launched the new round of “Staycation Delights,” which grants eligible individuals to redeem discounts in exchange for receipts worth at least $800. The Spend-to-Redeem “Staycation Delights” programme allows individuals, aged 18 or above, to present receipts from local retail or dining outlets to redeem a $500 discount at a local hotel. “The first round of the Spendto-Redeem ‘Staycation Delights’ programme in March successfully stimulated local spending,” HKTB Executive Director Dane Cheng said, noting the average of participants’ actual spending exceeded the minimum required amount by 70%.
Nearly 80% of Hong Kong execs experience mental health issues: survey
A total of 78% of Hong Kong executives have admitted to experiencing mental health symptoms over the past 12 months. Around 58% of executives in the city said they experienced anxiety, higher than 29% in China. Some 45.5% in Hong Kong suffered from disturbed sleep and 39% lacked energy or felt fatigued. This is also higher than 37.5% in both issues, recorded in China.
Tech event RISE returns to Hong Kong in 2022
Tech conference RISE will be returning to Hong Kong in 2022 as an in-person event, the Hong Kong Tourism Board (HKTB) and Web Summit announced. “This is a testimony of Hong Kong’s success in containing the pandemic and keeping infection rate amongst the lowest in the world, thereby giving international event organisers confidence that they can stage their events here safely,” Secretary for Commerce and Economic Development Edward Yau said. The event was first launched in 2015 and has since hosted five events. It has attracted major tech firms, such as Alibaba, Stripe, Magic Leap, and Sequoia Capital China.
Hong Kong signs MoU on overseas economic, trade cooperation zones
The Hong Kong government and the Ministry of Commerce signed a memorandum of understanding that will enhance overseas Economic and Trade Cooperation Zones (ETCZs). Under the MoU, the Hong Kong government and the Ministry of Commerce will leverage their respective strengths to promote the high-quality development of the ETCZs, as well as encourage enterprises of both places to invest and set up businesses at the ETCZs.
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Could Hong Kong investors’ optimism be dangerous?
Hong Kong investors have become more optimistic as they expect returns of their future investments to average more than 11% every year, Schroders Investment Management (Hong Kong) reported. This is even as the pandemic continues to disrupt economies across the globe, which Schroders raised might be a concern.
Hong Kong remains attractive to talents amidst population drop: CE Lam
Hong Kong remains an attractive destination for talents, Chief Executive Carrie Lam, assured amidst reports that the population dropped by nearly 90,000. The city’s population dropped by 87,100, or 1.2%, to 7.39 million in mid-2021 from 7.48 million in the same period last year, according to the Census and Statistics Department. a study by UOB Hong Kong and Hong Kong Trade Development Council (HKTDC) revealed. The key factors cited by companies for diving into ASEAN countries were cost-effectiveness, abundant resources, and huge markets.
Practitioners optimistic over HK’s finance industry in next three years
In a report, the Hong Kong Financial Services Development Council found that 56% of industry practitioners are “extremely optimistic” (5.5%) or “optimistic” (50.5%) over the prospect of the industry between 2022 and 2024. The majority of tertiary institution students (58%) also share this sentiment.
How much do Hong Kongers need to save to immigrate?
About 71% of Hong Kongers planning to leave the city for good say they would need to save at least HK$2.5m to be able to do so, a survey from a digital life insurer, Blue, showed. Based on the survey, it will take 41 years for locals to achieve their immigration budget given their current average monthly savings of HK$5,000.
4 in 10 employees inclined to contribute to sustainability agenda
Four in 10 employees in Hong Kong are inclined to help reduce carbon emissions in their respective workplaces, a survey from JLL showed. However, out of the 200 employees surveyed, 68% said their companies do not involve them in green initiatives and 57% are not aware of their workplace’s carbon reduction goals. Unawareness of companies’ carbon reduction goals amongst employees (60%) and noninvolvement of employees in green initiatives (65%) was also seen all over Asia-Pacific (65%). Given the results of the survey, JLL urged business leaders in Hong Kong “to engage with employees and achieve carbon reduction in the workplace.”
60% of GBA companies are eyeing ASEAN expansion in 3 years
About 60% of companies in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) are eyeing to expand into the Association of Southeast Asian Nations (ASEAN) countries in the next three years,
How evolving digital economy transforms HK’s ‘most exciting’ industries
Invest Hong Kong (InvestHK) and PricewaterhouseCoopers (PwC), in their joint report titled “Explore Opportunities in Hong Kong’s Digital Ecosystem,” showed that digital trends have dominated almost every business. This digital emphasis, according to InvestHK’s Director-General of Investment Promotion Stephen Phillips, “permeates Hong Kong’s lifestyle cluster including vibrant areas like e-commerce, food services, and creative industries.”
Long-term strategies needed to resolve HK’s housing crisis: report
Consistent long-term strategies are needed for Hong Kong to resolve its housing crisis. OCBC Investment Research said Hong Kong’s total housing supply target for 2022 to 2031—public and private combined—is at 430,000. Analysts said the latest figure is the same when compared to the 2019 target. This is despite the government’s higher 10-year goal of building 330,000 units from last year’s 316,000.
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Flexible office space offsets corporate downsizing: JLL
JLL’s latest Hong Kong Property Market Monitor released 23 September reveals corporate downsizing activities due to the pandemic were offset by the upgrading demand and expansion of the flexible office space sector. For instance, Compass Offices expanded in-house at Lee Garden One in Causeway Bay and Infinitus Plaza in Sheung Wan, whilst Regus leased another floor at The Gateway Tower 5 in Tsim Sha Tsui. upon fulfilment of all specified conditions under Return2hk, could be exempted from the 14-day compulsory quarantine requirement when returning to Hong Kong.
Hong Kong boosts tourism with staycation discounts, promo codes
The Hong Kong Tourism Board has launched another round of the spend-to-redeem Staycation Delights programme. Eligible members of the public can make a staycation booking starting 7 September. On top of this, there is a HK$500 discount with the promo code HKSTAY, rendering some packages technically free of charge.
HK resumes Return2hk scheme
The Hong Kong government has announced the resumption of the Return2hk scheme for people returning from Mainland areas other than Guangdong Province and Macau from 8 September. Hong Kong residents staying in Chinese provinces and municipalities other than Guangdong and Macau,
Fintech can boost HK competitiveness as global financial services centre: Chan
Hong Kong Financial Secretary Paul Chan addressed the Global Fintech Market Updates: Hong Kong-Korea Ecosystem webinar last 8 September. Financial technology professionals and investors from Hong Kong, Korea, and other countries were in attendance.
Banks welcome launch of WM Connect in Guangdong-Hong Kong-GBA
Banks have welcomed the launch of Wealth Management Connect in the Guangdong-Hong KongMacao Greater Bay Area (GBA), which enables cross-boundary wealth management investments more easily. Under the scheme, residents in Hong Kong, Macau, and nine cities in Guangdong Province will be able to carry out crossboundary investment in wealth management products distributed by banks in the GBA. With the launch of the WM Connect, the bank plans to further provide north-bound customers access to high-yield RMB assets on the Mainland, and give south-bound customers access to offshore investments, enabling them to diversify their portfolios.
What do Hong Kong employees want from their organisations?
Employees are now prioritising work-life balance during the pandemic compared to the period before the COVID-19 hits, according to Randstad. Randstad said that whilst attractive salary and benefits still rank as the most important employee value propositions (EVP) factor that organisations can offer at 62%, the work-life balance came second at 60%.
HK to limit retail investor access to SPACs
Hong Kong will propose limiting access to retail investors to buy and trade companies as the city prepares to roll out a framework this month. An anonymous source said that Hong Kong will only allow professional investors with assets of more than $1m to participate in both the primary and secondary market of special purpose acquisition companies.
HK retains rank as 3rd most competitive wealth management centre
Hong Kong has retained its seat as the third most competitive wealth management centre around the world, the fourth edition of the International Wealth Management Centre Ranking showed. Deloitte, which does the rankings, said HK’s is highly competitive, citing its domestic banks’ “strong position’’ in both high-net-worth and mass affluent space, and its regional arms of global wealth management firms focus on the ultra-high-net-worth investors.
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Gov’t, BritCham HK discuss plans for commerce and trade
Secretary for Commerce and Economic Development Edward Yau discussed support measures for commerce and trade under the 2021 policy address with Members of the British Chamber of Commerce in Hong Kong. Yau told business leaders that the government will continue to seek more trade opportunities through active participation in affairs of the World Trade Organization and the Asia-Pacific Economic Cooperation, and pursuing early accession to ASEAN’s Regional Comprehensive Economic Partnership. More economic and trade offices will also be established overseas to improve the city’s network, Yau added.
Transport and logistics industry to see varying recovery levels
The transport and logistics industry has managed to keep up with the economy, gradually resuming operations and incorporating different strategies to adapt to the new normal. However, as a downstream industry that is dependent on the activities of other industries, transport and logistics’ recovery is expected to be at varying degrees due to the pandemic. For the remainder of the year, the industry will be facing a tough road ahead. Sub-sectors would have to make sure that their businesses are stable, that they respond effectively to new mobility habits, and that their core logistics operations are entering digitalisation.
Why Lam is confident that HK will become an innovation and technology hub
Chief Executive Carrie Lam expressed confidence that Hong Kong will eventually become an international innovation and technology (I&T) hub, as she bared anew the government’s past and future plans on developing the sector. Amongst these efforts was the launching of the first-ever City I&T Grand Challenge, whose award presentation ceremony was attended by Lam. The challenge, organised by the Innovation and Technology Commission with the Hong Kong Science and Technology Parks Corporation, was participated by over 1,250 local and nonlocal innovators who developed I&T solutions on environmental sustainability and social connectivity.
Office market witnesses first positive take-up since Q3 2019
The office market recorded positive net absorption of 327,700 square feet in the third quarter (Q3) of 2021—a first since 2019 of the same quarter. Cushman & Wakefield reported a “resurgence” of leasing activity in Q3 with office space availability dipping to 13.9%.
What are the best platforms for influencer marketing in Hong Kong?
Instagram, YouTube, and Facebook are the top three social media platforms that are best to invest in for influencer marketing based on a report by end-to-end commerce platform, AnyMind Group. Of the three platforms, Instagram is the most popular amongst 4,500 influencers surveyed, with 53.77% total users. It is also the majorityused platform amongst the top three most popular influencer verticals in Hong Kong namely travel (57.19%), fashion and beauty (50.11%), and entertainment (47.27%). In terms of median engagement rates, Instagram also snapped the most audiences.
Cathay Pacific forms Aviation Climate Task Force
Cathay Pacific has formed the Aviation Climate Task Force together with Boston Consulting Group and other airline leaders in its bid to decarbonise the aviation sector. The aviation sector contributed less than 3% of global carbon dioxide emissions annually before the pandemic. The airline said ACT, which is a non-profit organisation, will take a “portfolio approach,” and focus on creating near-term, medium-term, and long-term solutions to eliminate carbon emissions in aviation. Hong Kong, through the HKTB, InvestHK, and AsiaWorld-Expo, will be hosting the event in the next five years. RISE will take place from 14 to 17 March 2022.
What are the four traits of digitally mature organisations?
A study conducted by Deloitte Southeast Asia and the Singapore Management University said there are four traits that could identify digitally mature organisations based on how they manage the governance, risk, and compliance aspects of digital transformation. Based on their respective names, ‘leaders’ are organisations that consider themselves as quite or very advanced in terms of digital transformation. Meanwhile, ‘chasers’ are those with moderate progress, and ‘explorers’ are those with “not very advanced” progress.
9 in 10 construction companies are SMEs
The majority of Hong Kong’s construction companies act as subcontractors for large construction firms.
Hong Kong’s construction industry is characterised by a small number of large local contractors, a large number of overseas contractors, and a high level of sub-contracting, with a substantial proportion of companies being both developers and contractors.
Most of Hong Kong’s construction companies are small in size. Companies that carry out construction work worth less than $10m (US$1.3m) in terms of annual gross value account for as much as 86% of the industry. The majority of the small companies act as subcontractors for the large ones, which tend to be main contractors. There are also a number of big construction companies capable of handling projects requiring sophisticated technology and strong financial backing, which are expanding their business across the region.
Hong Kong contractors tend to be experienced and highly skilled. There are no formal restrictions on entry to the contracting business in Hong Kong. Foreign and local contractors are treated alike, and all are allowed to tender local public sector projects. Due to the growing size and complexity of building projects, it is now common to award large and complex building contracts as a single package to multi-disciplined contractors.
Architecture
All practitioners have to register with the Hong Kong Institute of Architects, which has more than 4,000 members. Most of the architectural firms in Hong Kong are locally owned. Attracted by the business opportunities in the region, a number of foreign architects have come to work in Hong Kong.
Engineering
Many engineers are members of the Hong Kong Institution of Engineers (HKIE), a local professional body for engineers. First established as the Engineering Society of Hong Kong in 1947, the HKIE was incorporated by government ordinance in 1975 to set professional standards and to encourage professional development for local engineers. In 1992, the HKIE qualification was recognised for government services appointments. The HKIE has become a key qualifying body for a wide range of engineering disciplines.
Surveying
The number of surveyors practising in Hong Kong has been growing as a result of increasing demand and opportunities in the local and surrounding markets. A number of leading international surveying firms have established their regional offices in Hong Kong. Three divisions of Hong Kong’s surveying industry have gained mutual recognition of professional qualification with Mainland China, namely general practice, quantity surveying, and building surveying.
The Hong Kong Institute of Surveyors (HKIS) is a professional body established in 1984. As of December 2020, HKIS has over 7,000 corporate members.
Hong Kong is internationally renowned for its expertise in the construction of quality high-rise residential and commercial buildings, and its services are in great demand in overseas markets, particularly in Asia. Mainland China is the largest export market for Hong Kong’s architectural, engineering and surveying services. A number of Hong Kong companies in the engineering sector are also exporting their services via working for multinational companies in Southeast Asia, North America, and Western Europe, covering a wide range of industries including information technology, telecommunications, chemicals and fast-moving consumer goods.
The West Kowloon Cultural District has launched The Xiqu Centre, its first landmark performing arts venue “Companies that carry out construction work worth less than $10m in terms of annual gross value account for as much as 86% of the industry”
Industry development and market outlook
Investment in local public infrastructure
To achieve the objective of promoting economic growth through infrastructural development, the Hong Kong government has been increasing its infrastructure investment over the past few years. Hong Kong’s 10 mega infrastructure projects, first announced in the 2007 Policy Address, are being rolled out in phases and several transport projects are being carried forward in tandem.
The Hong Kong-Zhuhai-Macao Bridge and Guangzhou-Shenzhen-Hong Kong Express Rail Link were opened in 2018, improving logistics and transport efficiency between Hong Kong and mainland cities. The West Kowloon Cultural District, an important cultural infrastructure investment of Hong Kong, has launched The Xiqu Centre, its first
Major Indicators of the Construction Sector
2018 2019 YOY %
Establishments Employment Gross value of construction works performed (HK$ million) 26,418 192,042 409,778 24,822 164,651 385,177 -6.0 -14.3 -6.0
SOURCE: Key Statistics on Business Performance and Operating Characteristics of the Building, Construction and Real Estate Sectors (2019 Edition), Census and Statistics Department
landmark performing arts venue, in January 2019. Progress has also been made on the Rail Gen 2.0 project, with full Tuen Ma Line commenced services in June this year together with two new MTR stations, namely To Kwa Wan and Sung Wong Toi. Other major projects underway include MTR’s East Rail Line extension to Admiralty, Kai Tak Development, and development areas in the northern New Territories.
The 14th Five-Year Plan and the Greater Bay Area
The National 14th Five-Year Plan promulgates “expedition of the construction of inter-city railways, co-ordinated planning for the positioning of ports and airports, and optimisation of the allocation of maritime and aviation resources” to strengthen connectivity in the Greater Bay Area, which calls for faster growth in infrastructure construction in the region. The Plan also raises support for Hong Kong to enhance its status as an international aviation hub, underscoring the importance of the ongoing Three-runway System (3RS) Project at the Hong Kong International Airport. The pavement of the third runway was completed in September this year, and the entire 3RS Project is expected to complete by 2024.
Belt and road opportunities
In March 2015, China’s National Development and Reform Commission issued The Vision and Actions on Jointly Building the Silk Road Economic Belt and the 21st Century Maritime Silk Road, outlining the framework of the Belt and Road Initiative (BRI), co-operation priorities and mechanisms. As of 2020, it is estimated that mainland China has invested about US$770b into projects along the BRI routes, with over one-third of the investments going to transport infrastructure projects such as ports, railways, roads, and real estate projects. Hong Kong is renowned for its excellent professional services and it is expected that the industry can benefit from the ample opportunities ahead.
Developing Asia’s infrastructure needs
Many developing Asian countries, such as India and Indonesia, have recognised the urgent need to upgrade their basic infrastructure, road networks, port facilities, housing and city planning to keep up with rapid economic growth. According to the Asia Development Bank, the region is estimated to require US$26t from 2016 to 2030 to meet its infrastructure requirements, meaning US$1.7t will be needed for each intervening year.
Green building boom
The growing awareness of the need for environmental protection is creating an increasing demand for green buildings. Hong Kong’s Urban Renewal Authority has announced its environmental sustainability policy for future urban renewal projects. According to the Hong Kong Green Building Council, more than 2,300 buildings are certified by BEAM Plus, a leading initiative in Hong Kong to offer independent assessments of building sustainability performance. One example is the Hong Kong’s Children Hospital, which has installed a district cooling system, solar hot water system, and photovoltaic panels on rooftops to reduce energy consumption.
Hong Kong is outstanding in terms of integration and application of technologies and know-how in designing and constructing green buildings. A prime example is Hong Kong’s K11 Atelier King’s Road, which is the first building in the world to achieve all platinum levels pre-certifications of the WELL Building Standard, Hong Kong BEAM Plus and the US’ LEED. The building has incorporated a number of green technologies such as the use of low e-glazing, sensor-linked LED lighting systems to enhance its sustainability features. It is also equipped with Asia’s largest solar photovoltaic thermal installation on the rooftop to achieve higher energy savings and efficiency.
Technology adoption
In order to strive under the competitive global environment, it is critical for the construction industry in Hong Kong to promote efficiency and innovation by adopting modern construction methods and techniques, information technology (IT) and automation technology. The use of IT technologies such as Building Information Modelling (BIM) has increased across the industry, including large-scale project owners such as MTR Corp and Airport Authority. The introduction of Construction Industry Council BIM Standards allows industry participants to manage and assess BIM deliverables by architects, engineers, surveyors, and contractors.
To encourage innovative technologies in the construction sector, the Hong Kong government has set up a $1b Construction Innovation and Technology Fund (CITF) to help boost technology adoption.
By 2039, over 2.5 million elderly in Hong Kong are expected to increase the demand for medical services.
The medical and healthcare equipment sector in Hong Kong has two distinct markets, the household consumer market and the professional or institutional buyers (hospitals and clinics) market. Most companies in this sector are original equipment manufacturers (OEMs), producing for example massagers and blood pressure monitors for household consumer use, or rubber, plastic and resin mouldings for institutional use. Many Hong Kong-based companies also provide engineering design services to enhance their competitive edge.
To lower production costs, many Hong Kong manufacturers have relocated to mainland China. However, quality control, marketing, research and development, design, and materials and equipment procurement continue to be carried out in Hong Kong.
Growing sectors for Hong Kong manufacturers include home-based equipment, hygienically sterilised supplies, equipment for less invasive procedures, orthopaedic tools and devices, telemedicine products, and supplies for high health-risk diseases and injuries.
In 2020, Hong Kong’s total exports of medical and healthcare equipment increased significantly, by 17.5%. On the other hand, exports to the mainland, the largest market for Hong Kong, decreased slightly by 3.7%. Exports to the EU and US increased by 38.5% and 18.5% respectively.
Hong Kong’s exports of electro-diagnostic apparatus (including apparatus for functional exploratory examination or for checking physiological parameters) increased by 4.2%. Meanwhile, exports of miscellaneous medical instruments and appliances rose by 3.6%.
Medical equipment is mainly sold directly to hospitals and clinics, whilst healthcare equipment is mostly sold at department stores, chain stores, and supermarkets and distributed by local or overseas trading companies.
Many of Hong Kong’s medical and healthcare goods are manufactured to meet supplied product specifications and designs and exported under OEM arrangements. Hong Kong manufacturers are highly regarded for their handling of customers’ intellectual property (IP) and sensitive technology. Consequently, they have become increasingly involved in product design and development, including engineering, modelling, tooling, and quality control. Some Hong Kong manufacturers also apply for international certifications.
In addition to producing for OEM customers, some Hong Kong manufacturers have in-house research and development (R&D) departments to develop products marketed under their own brand names. For these original brand products, Hong Kong manufacturers may sell to overseas importers and distributors, who also act as agents to provide after-sales services.
Hong Kong manufacturers are highly regarded for their handling of customers’ intellectual property and sensitive technology “In 2020, Hong Kong’s total exports of medical and healthcare equipment increased significantly, while exports to the mainland decreased slightly"
Range of services
Medical services
There are 43 public hospitals and institutions, 49 specialist out-patient clinics, 73 general out-patient clinics which are managed by the Hospital Authority and 13 private hospitals in Hong Kong. These hospitals offer a wide range of medical treatment and rehabilitation services.
Demographic trends have an important impact on the medical services sector. According to the Census and Statistics Department, the population in Hong Kong is expected to age considerably in the coming years. The number of elderly people aged 65 or above is projected to increase from 18.4% of the total population in 2019 to 33.3% in 2039. As we head towards over 2.5 million elderly in Hong Kong, there will be a sustained increase in healthcare expenditure and the demand for medical services.
According to the Food and Health Bureau, Hong Kong’s health expenditure (the total of public and private health expenditure) is around $189.6b (US$24.3b) in 2019-2020. The health expenditure as a percentage of gross domestic product has been increasing steadily, with the percentage going up from 5.1% in 2010-2011 to 6.8% in 2019-2020.
In recent years, the Hospital Authority has made ongoing efforts in developing information technology-based solutions to support clinical works. One example is the “Smart Hospital Project,” which includes a Queue Management System to streamline
Performance of Hong Kong’s Exports of Medical and Healthcare Equipment
Domestic Exports Re-exports of mainland China Origin Total Exports
SOURCE: Census and Statistics Department of HKSAR 2019 2020 Jan – Sep 2021 HK$ Mn Growth % HK$ Mn Growth % HK$ Mn Growth %
29 +162.4 19 -33.1 12 -22.8 12,745 -2.1 14,984 +17.6 11,937 +5.0 7,532 -2.5 10,067 +33.7 8,257 +8.0 12,774 -2.0 15,003 +17.5 11,949 +4.9
the arrangement of outpatient consultations in clinics and hospitals. Mobile app “HA Go” was launched in December 2019, allowing patients to manage appointments on their mobile phones. To provide the best surgical services, Tseung Kwan O Hospital built a 5G network to instantly share endoscopic images using 5G smart glasses during an operation. These advancements further improve the efficiency of Hong Kong’s public healthcare system.
The CUHK Medical Centre (CUHKMC), Hong Kong’s first fully digitalised smart hospital, has been in operation since January 2021. It has introduced a number of innovations in healthcare procedures and hospital operations, for example implementing a fully electronic and paperless medical record system, and a mobile ICT and real-time data system to facilitate seamless patient treatment.
Biotechnology
There are more than 250 biotechnology-related companies in Hong Kong, most being healthcare companies working in pharmaceuticals, traditional Chinese medicinal or healthcare products, or medical devices and diagnostics.
The Hong Kong Science and Technology Parks Corporation (HKSTP) is a major player in promoting technological innovation in the city. It has identified biomedical technology (BMT) as one of its five key technology clusters and aims to support biomedical research from innovation to commercialisation. In 2020-2021, the biomedical technology sector grew rapidly. As of 31 March 2021, 156 biomedical technology companies and start-ups had established their R&D hubs at the Biomedical Technology (BMT) Cluster at HKSTP.
The presence of worldclass biomedical companies in HKSTP demonstrates Hong Kong’s uniqie position as a strategic biomedical research base in the region. For example, OrbusNeich has brought to the market a range of innovative stent and angioplasty balloon catheters for the treatment of coronary and peripheral vascular diseases. Its proprietary vessel pro healing drug eluting stent has received the CE Mark and regulatory approval in China and Japan. In February 2021, the HKSTPAstraZenecaCo-incubation Programme was launched to support biomedical start-ups in developing integrated oncology solutions.
The Government plays a key role in promoting the development of biotechnology in Hong Kong. In the 2018-19 Budget, the Government identified biotechnology as one of the four key areas where it would encourage innovation and technology.
Healthcare innovations
The Government is actively promoting the development of medical and healthcare innovations in Hong Kong, and has identified health technology as one of the focuses in setting up research clusters at HKSTP.
Hong Kong’s advantages
Market connections with Mainland China
According to the Global Innovation Index 2021, the Shenzhen-Hong KongGuangzhou S&T (Science and Technology) clusters ranked second globally in terms of the number of patents and scientific and tech publications.
To further facilitate R&D and the flow of I&T talent within the GBA, Hong Kong and Shenzhen plan to jointly develop a Hong Kong-Shenzhen Innovation and Technology Park (HSITP), and one of its priority development areas will be healthcare technologies. The park will be strategically located at the Lok Ma Chau Loop area (the Loop) near the Hong Kong-Shenzhen border. Upon completion, the park will be the largest ever I&T platform in Hong Kong. In the long run, the HSITP and the areas around Lok Ma Chau/San Tin will be consolidated to form the San Tin Technopole. This, together with the Shenzhen I&T zone, will form the Shenzhen-Hong Kong I&T Co-operation Zone, which will become an essential propeller for the development of an international I&T hub in the GBA.
Hong Kong is an important gateway for foreign manufacturers of proprietary Chinese medicine products, medical devices or drugs to tap into the GBA market. Hong Kong-registered drugs with urgent clinical use and medical devices used in Hong Kong public hospitals are permitted in designated medical and healthcare institutions operating in the nine Mainland cities of the GBA.
In terms of clinical applications, clinical trial data from Hong Kong is simultaneously recognised for drug registration purposes by various drug regulatory bodies such as the FDA, the European Medicines Agency (EMA) and China’s National Medical Products Administration (NMPA). A total of 32 specialties from Queen Mary Hospital, Prince of Wales Hospital, Hong Kong Eye Hospital and Hong Kong Sanatorium & Hospital have gained accreditation of the clinical trial sites from the National Medical Products Administration; clinical trial data generated from these sites will be for the purpose of drug registration in the Mainland. This enables Hong Kong to serve as an important platform for local and multinational pharmaceutical companies to venture into the vast Chinese market.
Market potential in Asia
In the ASEAN 61, it is expected that the increasingly elderly population will put further pressure on healthcare spending. According to the international consulting firm Solidiance, the over-65s group will account for being the key financial and capital market in Asia, Hong Kong is a popular IPO destination in the region. Hong Kong was APAC’s largest IPO centre for biotech companies, and the second largest in the world. Since the launch of a new listing regime in 2018, 67 healthcare companies completed their IPOs in Hong Kong, raising a total of $209 billion (US$26.8 billion) as of June 2021. According to HKEX, Hong Kong has the potential to become the world’s largest biotech IPO fundraising centre within the next five to 10 years.
HKIA links 120 airlines to 220 global destinations.
In terms of both value-added and employment, the trading and logistics industry is the largest amongst the four main economic pillars in Hong Kong. Trading and logistics accounted for 19.8% of the city’s gross domestic product (GDP) and provided some 673,700 jobs in 2019. The logistics industry alone contributed 2.9% of Hong Kong’s GDP and 176,200 jobs in that year. Transport services made up 30.9% of Hong Kong’s service exports in 2019.
Hong Kong International Airport (HKIA) is one of the world’s busiest airports for international cargo. In 2020, the total cargo throughput (including airmail) of HKIA reached 4.5 million tonnes.
Hong Kong’s port was ranked the ninth busiest container port in the world in 2020, trailing Shanghai, Singapore, NingboZhoushan, Shenzhen, Guangzhou, Qingdao, Busan, and Tianjin.
In DHL’s Global Connectedness Index (GCI) released in 2020, Hong Kong’s ranking in terms of the depth of global connectedness in 2019 was second-best in the world, after Singapore.
Strategic location and world-class infrastructure
As one of the regional hubs for Asia, Hong Kong has good connections with most Asian urban centres and half of the world’s population is within five hours’ flight time. Currently, around 120 airlines link the Hong Kong International Airport (HKIA) to about 220 destinations worldwide including about 40 destinations in mainland China.
HKIA has five first-tier air cargo handling facilities, with over 7 million tonnes of annual handling capacity.
With the Hong Kong government’s affirmation, the construction of the Third Runway System (3RS) began in 2016 and is expected to be completed by 2024. The 3RS project will allow HKIA to handle future traffic demand of as much as 102 million passengers, 8.9 million tonnes of cargo and 607,000 aircraft movements annually by 2030, according to IATA Consulting. officially opened to traffic on 24 October 2018. Built to facilitate passenger and freight transport over land between Hong Kong, mainland China, and Macau, the bridge greatly reduces journey times between cities and forms a new passageway to connect the east and west banks of Pearl River Delta.
Prior to the COVID-19 pandemic, there were about 21,700 inward vehicle crossings and 180 arrivals of river cargo vessels from the Pearl River Delta (PRD) to Hong Kong on a daily basis.
Lok Ma Chau, Man Kam To, Sha Tau Kok, Shenzhen Bay, Hong Kong-ZhuhaiMacao Bridge and Heung Yuen Wai are the six land boundary crossing points in Hong Kong, with about 43,000 vehicles crossing daily, prior to the pandemic.
Range of services
Air transport
Air transport has become more important for Hong Kong’s trade over the last few decades. 37% of Hong Kong’s total exports and 48% of its total imports were transported by air in 2020, compared with 26% of its exports and 19% of its imports in 1980. Hong Kong’s efficiency in customs clearance and its status as a free port are amongst the main reasons for this increase. Mainland China is the largest export and import market for items carried by air. Simple customs clearance procedures and 24-hour operation of HKIA make it convenient for goods destined for mainland China to go through Hong Kong.
Besides air cargo handling services, Hong Kong also provides airport management services, especially in air cargo terminal operations. This involves either investing directly in overseas air cargo terminals or providing consultant services. Hong Kong is well-positioned to tap into this market, as more and more airports around the world, particularly on mainland China, are either privatised or run as a commercial operation. A success story is a joint venture between Airport Authority Hong Kong (AAHK) and Hangzhou Xiaoshan International Airport, under which AAHK has an equity share of 35% while the rest of ownership is retained by Hangzhou government.
Freight forwarding
Large freight forwarders offer a wide range of transportation and logistics services whilst small ones tend to provide more basic and economical services with higher flexibility and more personalised services. Services related to trade, including the preparation of shipping documents, customs clearance and logistics, may be undertaken by the import and export companies or their agents.
Intermodal connectivity
Hong Kong-Zhuhai-Macao Bridge (HKZMB), the world’s longest sea-crossing,
Hong Kong International Airport is one of the world’s busiest airports for international cargo
Number of Establishments in the Industry
Air transport services Air cargo forwarding services Sea cargo forwarding services
SOURCE: Quarterly Report of Employment and Vacancies Statistics (Fourth Quarter 2020), Census and Statistics Department As at December 2020
161 1,303 2,337
Sea transport
The sea transport sector is vitally important in supporting Hong Kong’s status as the world’s eighth-largest trading entity. Mainland China is the biggest source of and destination for Hong Kong’s transhipment cargo.
Liner shipping
Sea cargo to and from Hong Kong is carried both by liners and bulk vessels. Hong Kong is a major hub with about 280 container vessel sailings per week, connecting to over 600 destinations worldwide.
The larger container lines have invested in advanced systems to provide cargo tracking information and improve efficiency. They often form alliances or merge with other transport providers to develop door-to-door multi-modal services. Many liners are also forming alliances amongst themselves to increase efficiency and reduce cost in a very competitive environment. Vessel sharing has enabled the liners to offer a more flexible service in terms of global coverage, higher frequency of departures and a greater choice of routes.
Port facilities
Hong Kong’s port facilities are financed, built, owned and operated by private firms. Hong Kong has nine existing container terminals with a total of 24 berths at Kwai Chung and Tsing Yi Island, operated by several private consortia. Through various productivity enhancement measures, their combined throughput capacity is more than 20 million TEUs per year.
River Trade Terminal
The Pearl River links Hong Kong with many manufacturing centres in Southern China, with the PRD being the main cargo base for the territory. River trade has grown exponentially over the past three decades, rising from 9.3 million tonnes in 1990 to 100 million tonnes in 2020. To cater for this increasing river trade, a dedicated terminal, the River Trade Terminal (RTT), was established in 1996 and became operational in November 1998. The RTT is currently located in the west of Tuen Mun.
Service providers
Air transport
About 120 international airlines provide passenger and all-cargo flights between Hong Kong and about 220 destinations worldwide, including about 40 mainland cities. Currently, Hong Kong has Air Services Agreements or International Air Services Transit Agreements with 67 aviation partners.
Freight forwarding
Hong Kong has a pool of international and highly experienced logistics companies that enables smooth logistic flows. Many of them are represented in the Hong Kong Association of Freight Forwarding and Logistics (HAFFA). HAFFA, whose 300 members include DHL, UPS, Expeditors, Panalpina, Kerry Logistics and DB Schenker, aims to promote standardisation and professional conduct among industry players.
Sea transport
As more countries seek to privatise their port operations and/or develop new ports run on a commercial basis, demand for exportable sea transport services is increasing.In 2020, 2,603 vessels were listed on the Hong Kong Shipping Register (HKSR), boasting a total of 130 million gross tonnes, making Hong Kong the fourth largest shipping register in the world, behind only Panama, Liberia and the Marshall Islands.
River trade has grown from 9.3 million tonnes in 1990 to 100 million tonnes in 2020
Foreign licensors prefer HK licensing agents as partners
Thanks to the agents’ strong networks in mainland China.
Hong Kong’s licensing market began to take shape in the early 1990s. Despite its relatively short history of development, the Hong Kong market has become highly developed in Asia. Main categories of licensed products in Hong Kong include apparel and accessories, food and beverages, toys, gift items, stationery, computer supplies and sales promotions for fast food chains and banks.
Hong Kong local fashion label, :CHOCOOLATE, has been actively exploring licensing opportunities with international brands and companies. For example, it has featured Japanese character Kumamon, Disney’s Tsum Tsum, and South Korea’s LINE FRIENDS in a variety of its apparel and accessories collections. YGM Trading, a Hong Kong apparel retail and wholesale company, is a licensee of European and American designer brands to handle their sales and distribution in mainland China and other Asian markets. In the food and beverages sector, Maxim’s Group is a licensee of renowned brands such as The Cheesecake Factory and Shake Shack.
As face masks are becoming essential to minimise the spread of COVID-19, retailers are turning to launch them with licensed characters to attract customers. 2 Degree Studio, a local face-mask retailer, differentiates itself by selling various face masks with licensed characters such as Snoopy, Le Petit Prince, Kakao Friends, Moomin and Pokemon. Daniel & Co. (Gifts) Limited, the official licensee of Sanrio since 2008, has also launched face masks with Sanrio characters.
Hong Kong has relatively few home-grown brands and properties for licensing. Some examples include Din Dong, SHIBAinc characters, Hong Kong cartoon character McDull and Ocean Park’s Whiskers & Friends. Nevertheless, many international licensors and licensing agents, such as Iconix Brand Group and Mattel have chosen to set up offices in Hong Kong, which often function as the regional headquarters in Asia. Moreover, many famous foreign licensors have entrusted their exclusive property rights to Hong Kong licensing agents to develop the business in Asia.
Best known as a shoppers’ paradise, many international licensors choose to partner with Hong Kong shopping malls for promotional campaigns for their licensed characters or products. For example, LEGO has collaborated with Tuen Mun Town Plaza to set up interactive game zones to offer hands-on experience and promote its brand.
The Asian Licensing Association was established by Hong Kong industry leaders in 2011 to promote Hong Kong as an international licensing hub. The Innovative Entrepreneur Association launched the Design Licensing and Business Support Scheme (D-LAB) in 2019, which aims to provide licensing and design-related training courses and mentorship programmes for design start-ups or SMEs.
The Hong Kong International Licensing Show (HKILS) held since 2002 is well-known in Asia and has helped promote Hong Kong as the regional licensing hub. The 18th edition of HKILS held in January 2020 attracted more than 20,000 visitors, including manufacturers, licensees, retailers, and distributors.
The Asian Licensing Conference 2020, held concurrently with HKILS, brought together 30 expert speakers from various international brands and different sectors in the licensing industry, focusing on new opportunities and strategies for licensing business in Asia. The event also served as a networking platform for international licensing executives and business people to gather industry intelligence and explore new opportunities.
Trade-in services
The significance of Hong Kong’s licensing business lies in its status as a hub for licensing activities in Asia. Local business usually accounts for a small proportion of the overall business of licensors and licensing agents, who are more active in other Asian countries.
Licensing activities between Hong Kong and the rest of the world can be partly reflected in the cross-border payments for the use of intellectual properties.
Licensing trending globally
According to Licensing International, the global retail sales of licensed merchandise and services amounted to US$292.8b in
Licensing activities between Hong Kong and the rest of the world can be partly reflected in the cross-border payments for the use of intellectual properties “The significance of Hong Kong’s licensing business lies in its status as a hub for licensing activities in Asia”
Charges for the Use of Intellectual Properties*
Export Import
HK$ million Growth (%) Share in total services exports (%) HK$ million Growth (%) Share in total services exports (%) 2017 5,605 7.3 0.7 15,001 2.6 2.5
2018 5,821 2019 5,911 3.9 1.5 0.7 0.7 15,622 15,511 4.1 -0.7 2.5 2.4
*Includes: 1) Franchises and trademarks licensing fees. 2) Receipts/payments on authorised use of patents, copyrights and other non-financial proprietary rights and receipts/payments for licences to reproduce and/or distribute intellectual property embodied in products not included elsewhere.
SOURCE: Report on Hong Kong Trade in Services Statistics for 2019, Census & Statistics Department
2019. North America remains the largest market for licensed merchandise and services, with revenue accounting for 58% of the global market. Meanwhile, Asia recorded the strongest growth, increasing by more than 5% for the year. ‘Character and entertainment’ was the largest group of licensing property in terms of global licensed merchandise sales in 2019, accounting for 43.8% of the global licensing market. ‘Corporate trademark and brand’ was the second-largest property type, generating US$60.1b of retail sales (21% of the total).
E-commerce and licensing
E-commerce is facilitating the international licensing business. Characters, fads, brands and fashion trends now travel at high speed across the markets, cutting short the time needed to get a product from licensed concepts to retail shelves. Medialink Group, a leading distributor of third-party owned media content headquartered in Hong Kong, launched its e-commerce site Ani-Mall in August 2020. The platform sells a variety of authentic merchandise ranging from anime accessories, collectible items, stationery and plush toys from world-known character brands licensed by the company, such as My Hero Academia and The Promised Neverland. The internet and social media, such as Instagram and Facebook, is also an important channel for marketing new properties.
Gaming and e-sports licensing
Gaming and e-sports have become mainstream entertainment in recent years. According to Newzoo, the global gaming market is expected to generate revenues of US$176b in 2021. Spinning off from the gaming industry, global revenue from e-sports – largely from media rights and sponsorships – will grow by 15% and reach US$1.1b in the same year, with China being the largest market (33% of global share).
E-sports merchandise is making its way into the apparel market. For example, Champion Athleticwear has partnered with HyperX, a gaming gear brand, to launch several apparel lines including hoodies, t-shirts and face masks. Global luxury fashion brand Ralph Lauren has also joined the European esports organisation G2 Esports as their exclusive fashion outfitter.
China’s licensing market
According to a report released by China Toy and Juvenile Products Association, China saw US$17b of licensed merchandise sales in 2020, up 11.5% from the previous year. ‘Character and entertainment’ continues to dominate the Chinese licensing market, with home-grown licensing properties, such as Deer Squad, gaining popularity in recent years.
Attracted by the large consumer base, many foreign companies are scouting the Chinese market to seize licensing opportunities. Canadian multinational entertainment company Entertainment One, Care Bears brand-owner CloudCo Entertainment, Japanese company Sanrio (Hello Kitty) and Korean brand Kakao Friends have all established a presence in China for brand licensing and retail distribution of licensed products.
In China, e-commerce has become one of the top trends in the licensing industry. Many brands and properties use B2C online platforms to promote brand awareness and extend their customer base. Tmall, JD.com, and Taobao are the three major online platforms used to promote licensed merchandise in China, while social media platforms such as Douyin and Xiaohongshu are also gaining popularity as marketing and sales channels.
Hong Kong licensing agents with strong networks in mainland China are the preferred partners for many foreign licensors to exploit emerging opportunities there. One example is Medialink Group, which has been appointed as the licensing agent of Sesame Street’s products and merchandise and manages licensing business in mainland China.
In addition, Hong Kong is the preferred gateway for mainland-based enterprises to promote their brand names and trademarks overseas due to the city’s remarkable international network, as well as resourceful licensing players providing quality services, including public relations support and personnel training.
CEPA provisions
The Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) further opens up the mainland market for Hong Kong products and the distribution business to Hong Kong companies. Under the Agreement on Trade in Services (ATIS), Hong Kong service suppliers are granted national treatment to conduct retailing and wholesale services in mainland China.
‘Trade disintermediation’ poses threat to HK trading
Thus, exporting firms turn to sophisticated value-added services such as coordinating production for overseas buyers.
Hong Kong’s import and export trading firms are active in sourcing various industrial goods, including raw materials, machinery and parts, and a wide range of consumer goods. There are three main types of sourcing activities: (1) sourcing goods produced in Hong Kong; (2) sourcing goods from around the region for re-export; and (3) sourcing goods from one country to be shipped directly to a third country without touching Hong Kong territory.
The import business of Hong Kong trading firms is mainly managed by distribution through agents or dealers. These trading firms usually specialise in one product area and represent one or more foreign brands. Their trading map usually encompasses Hong Kong, mainland China (or certain parts of it) and/or other Asian countries.
With the development of trade support services in mainland China, trading firms increasingly source goods offshore for sale to international markets. Some of these goods are either transhipped via Hong Kong or shipped directly without touching Hong Kong territory. Such offshore trade is not reflected in Hong Kong’s trade statistics. According to official statistics, Hong Kong’s offshore trade in 2019 (including both “merchanting” and “merchandising for offshore transactions”) was estimated to be $4,709b (US$604b), a decrease of 2.5% over 2018. In comparison, re-exports totalled $3,941b (US$505b) in 2018, down 4.2% over 2018, representing 83.7% of total offshore trade.
Service providers
Hong Kong’s import and export trading firms are typically small, employing less than 10 persons on average. There were 105,675 import and export trading firms in Hong Kong as of December 2020, with the majority of them being SMEs. There are three broad categories of import and export trading firms:
Left hand-right hand traders: these refer to trading firms that match sellers and buyers without adding any significant value to the process. These firms conduct a straight-forward sourcing operation, usually identifying goods produced on the mainland or Hong Kong and shipping them to overseas markets. They rely on their specialist knowledge of the sources of products in the region and the low costs of their supplies as their main competitive advantages.
Traders with some value-added services: many firms now source raw materials for their suppliers and provide finance for these materials. They often use letters of credit from their customers as a guarantee for raising finance for their purchase orders. Other firms develop a sub-contractor relationship with a number of factories in which they exert significant control over the management of production, including quality control.
Traders with sophisticated value-added services: in certain cases exporting firms have added value to their traditional activity to such an extent that it may be difficult to retain the label of being exporters. For example, some firms design and manufacture components for their supplier factories to produce finished goods, which the firms subsequently export. These firms add value mostly from their design team, and their competitive edge comes from their ability to design products which sell well in the target markets. In 2019, the rate of gross margin of merchanting fell slightly to 6.3% from 6.4% in 2018. This means that the export market is relatively stable, though margins remain below the 6.9% recorded in 2009. In the same year, the commission rate of merchandising for offshore transactions stood at 6.2% (2018:6.7%; 2017: 6.9%).
Trade disintermediation
The business environment for Hong Kong’s trading firms is becoming more challenging amidst the growing trend toward direct dealing between customers and manufacturers, known as “trade disintermediation”. In response to this, Hong Kong traders are adapting to provide more value-added services, in addition to finding more competitive sources of supplies. For example, Hong Kong traders help their overseas clients to inspect the goods produced by the manufacturers to ensure they meet the procurement standard, and monitor production schedules to meet delivery. Hong Kong traders can also help overseas buyers coordinate production when the buyers have a sudden surge in orders and quick turnaround is needed.
The operations of small and big trading firms are quite different. Smaller firms are usually strong in introducing foreign products to the mainland market. In most cases, they specialise in one area, such as medical equipment, and represent some foreign brands as their agents or distributors.
With the development of trade support services in mainland China, trading firms increasingly source goods offshore for sale to international markets “Hong Kong’s offshore trade in 2019 was estimated to be $4,709b, a decrease of 2.5% in 2018”
Exports of Merchanting and Trade-related Services (US$ billion)
Exports of Merchanting and Trade-related Services Year-on-year growth Contribution to Services Exports
SOURCE: Gross Domestic Product (Quarterly), Census and Statistics Department 2015 2016 2017 2018 2019
36.4 36.6 38.7 40.6 39.7 -3.0% +0.6% +5.8% +5.4% -2.2% 27.0% 28.3% 28.1% 27.4% 29.3%
Bigger trading firms are usually strong in sourcing products from the region. They usually have regional or global sourcing networks and do not specialise in just one type of product.
Exports
Hong Kong’s import and export trading sector provides services mainly in the form of offshore buying and selling of goods. Given Hong Kong’s location and the relocation of Hong Kong’s manufacturing bases to the mainland, particularly the Pearl River Delta, mainland China is a major source of offshore trading activities. Hong Kong manufacturers are diversifying their production activities to other low-cost countries, and the offshore trading pattern is expected to reflect this move. In 2019, Hong Kong earned US$39.7b from exporting merchanting and trade-related services, accounting for 29.3% of total services exports.
Industry development and market outlook
Impacted by the COVID-19 pandemic and the softening of global demand, Hong Kong’s total merchandise trade decreased by 2.5% to $8,197b (US$1,051b) in 2020, after dropping by 5.4% in 2019. In the same period, Hong Kong’s merchandise exports saw a year-on-year decrease of 1.5%, after a fall of 4.1% in the previous year. In 2020, Hong Kong’s major export markets were mainland China (59.2% of total), the ASEAN (7.2%), and the EU (7.1%).
In recent years, Asia has become a more integrated market, thanks to the various free trade agreements (FTAs) signed in the region. In particular, the product trade arrangements under the China-ASEAN Free Trade Area (CAFTA) pact, which commenced in 2005 with scheduled tariff elimination completed in 2010, have contributed to higher intraAsian trade. In November 2015, China and ASEAN concluded an upgraded FTA that covers further liberalisation of trade as well as economic, investment and regulatory co-operation. The upgraded protocol of the CAFTA took effect on 22 October 2019.
Trading in Asia
Over the past few years, there has been an increase in companies in developed economies treating Asia as a market instead of a pure production base. During 20152020, North America’s exports to Asia expanded by a compound annual growth rate (CAGR) of 1.1%, surpassing the CAGR of 1.0% in respect of its exports to Europe in the same period.
ASEAN as a group is the second-largest export market and second-largest trading partner of Hong Kong, with Singapore, Vietnam, and Thailand being the top three markets for Hong Kong products in 2020. To foster stronger economic ties between Hong Kong and ASEAN, the two sides signed the Hong KongASEAN Free Trade Agreement (HAFTA) in November 2017. In addition to the reduction and/or elimination of import tariffs, other key elements covered by the HAFTA include rules of origin, liberalisation of trade in services, promotion and protection of investment, and intellectual property cooperation. Part of the HAFTA entered into force in June 2019.
The 14th Five-Year Plan was announced in March 2021, with an emphasis on expanding domestic demand, accelerating the domestic circulation and “dual circulation” development strategy, improving the business environment, and promoting further economic growth. As an international trade center, Hong Kong companies can actively expand the mainland domestic market under the internal circulation, whilst playing an important role in the crossborder trade under the external circulation, bringing new business opportunities for Hong Kong’s trade sector.
CEPA Provisions
Under The Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA), all products of Hong Kong origin, except for a few prohibited articles, can be imported into the mainland tariff-free. In the services sector, Hong Kong service suppliers (HKSS) can provide, in the form of wholly owned operations, commission agents’ services and wholesale trade services, and can set up wholly owned external trading companies in the mainland area.
After 10 annual supplements signed between 2004 and 2013 to keep widening and broadening the liberalisation measures in favour of HKSS, Hong Kong and the mainland entered into a subsidiary agreement under CEPA in 2014 to achieve basic liberalisation of trade in services in Guangdong (Guangdong Agreement). This was followed by the Agreement on Trade in Services (ATIS) to extend the coverage of the 2014 agreement from Guangdong to the rest of the mainland from June 2016. Unlike the previous supplements that adopted a positive-list approach to introducing liberalisation measures, the two latest CEPA agreements adopt a hybrid approach to granting preferential access to Hong Kong using both positive and negative lists.
HK spectacles makers vs ASEAN neighbours
Hong Kong’s spectacles exports grew 28% YoY to $14.3b in 2021.
Hong Kong’s spectacles manufacturers specialise in making medium to high-end frames. They are able to cope with small orders and offer an extensive range of frame designs. Hong Kong companies are traditionally strong in making plastic spectacle frames, which include those handmade from cellulose acetate, rimless nylon styles, and injection-moulded types. They also produce metal frames made from aluminium alloy, brass, stainless steel, silver, titanium, and mixtures of metals, and some with rolled gold. The majority of Hong Kong’s spectacles companies produce for overseas buyers and international brands, or trade on an OEM/ODM basis.
The industry is labour-intensive, and characterised by a short life cycle, rapidly changing designs, and small order sizes. A small number of Hong Kong companies have diversified their business, from manufacturing to distribution and retail of their original brands and designs on the mainland as well as overseas.
Hong Kong’s spectacles companies are facing keen competition from counterparts in nearby regions, particularly Shenzhen, Wenzhou, and Danyang on the mainland. Nonetheless, competition is confined to the lower end of the market. The leading Italian companies still prefer to engage with Hong Kong sub-contractors because of their quality, business integrity, and long-established corporate relationships.
To reduce operating costs and diversify production from the mainland, some spectacles makers are setting up production lines in the ASEAN region, yet high value-added activities, including marketing, management, finance and accounts, are still carried out in Hong Kong.
Large-scale manufacturers make substantial investments in advanced machinery and information technology. They may use 3D CAD/CAM technologies and computer numerically controlled production lines to enhance their design and streamline the production process. Another introduction is the 3D Head Mould and design database, which can customise spectacles specific to Asian faces.
The sector is well supported by ancillary industries, producing cellulose acetate sheets for plastic frame production, optical parts including spring hinges, nose bridges, and temples – the side arms – and other industrial supports such as electroplating and mould-making.
Hong Kong was the world’s third-largest exporter of spectacles and frames in 2019, after mainland China and Italy. In 2020, Hong Kong’s total exports of spectacles, lenses, and frames contracted by 22% year-on-year to $16b. In the period of January to September 2021, the exports reached $14.3b, with a growth of 28% compared to the same period in 2020. Exports to the EU27 and the US, the two largest markets sharing more than 50% of total exports, increased by 41% and 50%, respectively. Hong Kong’s exports to mainland China, the third-largest export destination, dropped by 3% compared to the same period in last year.
Frames and mountings, and spectacles and goggles, which together accounted for 76% of the total exports, contracted by 21% and 32%, respectively, in 2020. Lenses and parts for frames and mountings, slid 6% and rose 7%, respectively, in the same period.
Sales channels
On the retail side, most sales are carried out by chain stores and wholesalers worldwide. Many manufacturers deal directly with overseas buyers, including large retail chains. A growing number of Hong Kong exporters produce house or international designer brands under a licensing agreement. Some Hong Kong exporters have formed strategic alliances with overseas companies and brand license to consolidate long-term relationships and explore overseas market opportunities.
Hong Kong manufacturers are also engaged in OBM, developing their own brands for other markets, particularly in mainland China, Asia, and Europe. Major Hong Kong optical retail brands such as eGG Optical Boutique and Optical 88 have diversified into the distribution business by setting up chains of retail stores on the mainland and in Southeast Asia, whilst some have established distributors throughout Europe and North America.
Industry trends
Online retailing: Some local optical retail brands have launched e-commerce sites as a response to the COVID-19 crisis. As people spend more time at home complying with containment measures, customers of all ages are becoming accustomed to shopping for
Hong Kong’s spectacles companies are facing keen competition from counterparts in nearby regions “Hong Kong was the world’s third‑largest exporter of spectacles and frames in 2019, after mainland China and Italy”
Performance of Hong Kong Spectacles Exports
(HK$ million)
Domestic Exports Re-exports of mainland China origin Total Exports
* insignificant SOURCE: Hong Kong Trade Statistics, Census and Statistics Department 2019 2020 Jan-Sep 2021 Value Growth % Value Growth % Value Growth %
26 +11 9 -65 11 +37 20,547 * 16,027 -22 14,357 +28 16,135 -3 12,640 -22 11,502 +29 20,573 * 16,036 -22 14,367 +28
spectacles and lenses online, helped by technologies such as 3D facial scanning and online vision tests. SmartBuyGlasses offers virtual try-on feature in which customers can try different eyewear online to find the frames that fit their face shapes. Some local designer brands – such as Big Horn, HACHiLL, UNSUIKYO, and 22° Eyewear – are leveraging online channels to sell and connect with both their local and overseas customers.
Emphasis on design and quality: Capitalising on the city’s strength in high-end optical manufacturing, the latest generation of Hong Kong designers has brought new materials and modern elements to spectacle design. Some local brands such as P+US Eyewear and Big Horn are not only popular amongst celebrities, but are also award-winning (for example, the iF Award, the Red Dot Design Award, the A’ Design Award & Competition and the International Design Awards USA) and internationally recognised. Some of Hong Kong’s local brands also acquired patents for their designs.
Domestic sales: The mainland optical market is likely to drive growth in the aftermath of the pandemic. This is a highly fragmented market with the top 10 companies accounting for a market share of just 16.5%. Hong Kong is therefore a handy and effective springboard for new-to-the-market eyewear companies exploring the mainland. Marchon Eyewear, a US-based eyewear manufacturer and distributor, and one of the top three optical companies in the mainland market, is headquartered in Hong Kong.
Eco-friendliness and sustainability: With the rise of ESG, to stay compliant and competitive in today’s marketplace, some Hong Kong eyewear brands such as Okia Optical have launched sustainable glasses featuring recycled materials such as plastic water bottles used for the frame, and biodegradable materials used for the lenses.
Fashion and designer labels: An increasing number of fashion and designer labels promote their own collections of spectacles and frames as fashion accessories, and grant licences to spectacles manufacturers. For example, eyewear conglomerate Luxottica Group has been producing and distributing the branded eyewear frames for Chanel, Burberry, D&G and Prada.
CEPA provisions
Under the third phase of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA III), the mainland agreed to give all products of Hong Kong origin, including spectacles, tariff-free treatment from 1 January 2006. According to the stipulated procedures, products that have no existing CEPA rules of origin can enjoy tariff-free treatment upon application by local manufacturers and upon the CEPA rules of origin being agreed and met. Non-Hong Kong-made spectacles remain subject to tariff rates of 6-7% when entering the mainland.
The rules of origin for contact lenses and spectacle lenses are the same as the current ones governing exports to other markets to benefit from the CEPA’s tariff preference. That is, the principal processes must be carried out in Hong Kong for the purpose of delineating their origin. For contact lenses manufactured from polymer, the principal processes are lathe-cutting and polishing. For lenses of glass, an additional principal process is the application of an ultraviolet protection coating. If laminating or cutting of lenses are required, such processes must also be done in Hong Kong. For spectacle lenses manufactured from lens blanks, the principal process is grinding and polishing to shape.
To further facilitate the importation of Hong Kong goods into the mainland with zero tariffs, the mainland and Hong Kong signed the Agreement on Trade in Goods under CEPA in 2018. This provides exporters with the flexibility to choose between the existing Build-up method and the new Build-down method when calculating the value added to the products in Hong Kong.
General trade measures affecting spectacles exports
Spectacles exports are required to comply with certain safety and quality requirements. The EU PPE Regulation (2016/425), which replaced EU Directive (89/686/EEC) from 21 April 2018, stipulates that personal protective equipment must meet specified health and safety requirements and bear a CE mark when being sold in the EU market. In addition, the EU standard (16128:2015) provides a reference method for testing of nickel release in spectacle frames and sunglasses.
Air purifiers and infrared thermometers drove strong demand due to the rising awareness of health and hygiene amongst Hong Kongers.
Hong Kong’s electronics industry is the territory’s largest merchandise export earner, accounting for 71.8% of total exports in 2020. A substantial portion of these exports is regarded as high-tech products, especially those related to telecommunications equipment, semiconductors and computer items. Mainland China is both the major source of and the major destination for Hong Kong’s electronic products trade.
According to the latest available statistics, Hong Kong was the world’s largest exporter of electronic integrated circuits; the second largest exporter of computer parts/accessories and video cameras; and the world’s thirdlargest exporter of video recording apparatus and telephones/mobile phones in value terms in 2019. This is thanks to the huge re-export business handled through the territory, as Hong Kong is amongst the major global trading hubs.
Parts and components constitute about three-quarters of Hong Kong’s electronics exports, of which the majority are re-exported to mainland China for outward processing production. Finished goods constitute about one-quarter of the exports, of which the majority are consumer electronics for domestic use, including a wide range of audio-visual equipment, computer products and telecommunications equipment.
Industry features
Most Hong Kong manufacturers have relocated their production facilities to mainland China to reduce costs. Their Hong Kong offices now focus mainly on research and development activities, product design and development, management, logistic support, marketing, etc. Their setups in Hong Kong are largely classified as non-manufacturing establishments statistically, despite the fact that they have manufacturing activities across the border.
Against fast-changing markets and advancing technology, Hong Kong companies emphasise quick response to ensure effective services to their customers. Also, many Hong Kong companies have further strengthened their quality assurance and environmental management systems, and are accredited with ISO 9000 – an internationally recognised standard for a quality management system, ISO 14000 – a standard for an environmental management system, etc.
Hong Kong’s electronics exports rose by 3.4% in 2020. The major export markets were mainland China (accounting for 64.6% of the total exports in 2020), the EU (6.9%), the ASEAN (6.5%), and the US (5.1%). Exports to mainland China increased by 6.7% in tandem with the sustained revival of the global economy after the past two years.
Distribution channels
Hong Kong companies engaging in parts and components business are capable of producing on a custom-made basis and offering total solutions for famous US, European, and Japanese companies, e.g. parts and accessories of computers, RF modules for telecommunication purposes, chip-sets for LCD modules, etc. Meanwhile, standard components are usually exported directly to distributors and manufacturers in overseas markets, whilst some Hong Kong companies also have their own sales offices and/or representative offices in mainland China and other overseas markets.
Notably, Hong Kong is an important trading hub for electronic parts and components in Asia-Pacific. Many items from the US, Europe, Japan, Taiwan, and South Korea are re-exported via Hong Kong to the mainland, and vice versa. A number of multinational parts and components manufacturers have set up offices in Hong Kong, engaging in sales, distribution, and sourcing activities in the region.
Regarding finished items, Hong Kong companies mostly produce on an ODM basis for reputable brand names in overseas markets. Some of these major buyers have set up offices in Hong Kong for direct sourcing. Hong Kong companies also sell to specialised importers and traders in North America and Europe, who distribute the merchandise under their own channels or re-sell to their clients for further distribution.
There are also a number of Hong Kong companies marketing electronic products under their own brand names, including Truly, V-Tech, Group Sense, Venturer, GP, and ACL. Their sales network covers not only the advanced countries but also economies like Latin America, Eastern Europe, and various parts of Asia.
Promotion via participation in trade fairs is an effective way for Hong Kong’s electronics companies to explore market opportunities. Important trade fairs include the CES Show held in the US, CeBIT Fair, and Electronica in Germany, Taipei International Electronics Show in Taiwan, CommunicAsia in Singapore, and the Hong Kong Electronics Fair organised by the Hong Kong Trade Development Council (HKTDC). Business missions organised by the HKTDC to the mainland and other emerging markets also provide opportunities for Hong Kong companies to establish connections with potential buyers.
The rising awareness on personal hygiene and health has driven strong demand for health-related electronic products, such as air purifiers and infrared thermometers
Performance of Hong Kong’s Exports of Electronics
Domestic Exports Re-exports of mainland China origin Total Exports
SOURCE: Census and Statistics Department 2019 2020 Jan-Jun 2021 HK$ bn Growth % HK$ bn Growth % HK$ bn Growth %
2.0 -3.2 2.6 +25.3 1.4 +20.7 2,723.8 -4.1 2,817.2 +3.4 1,645 +31.4 1,599.5 -7.4 1,582.0 -1.1 889 +26.7 2,725.8 -4.1 2,819.8 +3.4 1,647 +31.4
Product trends
On the back of technological advancement and falling prices amidst keen competition, conventional IT products like notebook computers have become mass products. Now, the industry is focusing on further technological enhancement to sustain the business. Notably, mobile devices with enhanced smart features are in demand around the globe.
Meanwhile, mobile communication has become part of the daily lives of consumers in most countries. In particular, sales of high-end smartphones are rising rapidly. Many models are now compatible with certain wearable electronics and other smart devices. This has attracted demand especially from the younger generation and high-income consumers.
In consumer electronics, one key development is digital imaging, in particular, large-screen digital TVs with connectivity. This enables internet surfing with the so-called “smart TV” features and the ability to communicate with mobile devices, as well as the ultrahigh-definition TVs (UHDTVs) with a display resolution of 4K or higher.
In addition, some players are keen to promote 3D printers in view of the falling printing and other material costs. Also, the industry is keeping an eye on the development of certain niche items, such as action camcorders and drones, as well as products related to the Internet of Things (IoT), which are taken by some players as means to inspire the market and create new business. Smart homes will be one of the major IoT application areas that could elicit huge demand for related IT systems, hardware and devices.
The COVID-19 pandemic has affected daily life in unprecedented ways. The rising awareness on personal hygiene and health has driven strong demand for health-related electronic products, such as air purifiers and infrared thermometers etc. As for businesses, the pandemic has accelerated the adoption of digital technologies. Many enterprises have introduced smart devices to their offices, such as interactive whiteboards and smart meeting rooms to make remote conferences more productive and engaging for employees, thereby driving the demand for electronic products.
CEPA provisions
Since the implementation of the third phase of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA III) in January 2006, all products of Hong Kong origin can be imported into the mainland at zero tariffs.
In December 2018, the mainland and Hong Kong signed the Agreement on Trade in Goods, which further enhanced the arrangement for rules of origin (ROOs). Starting from 1 January 2019, goods of Hong Kong origin fully enjoy zero tariff when imported into the mainland. In addition to the product-specific ROOs (PSRs), Hong Kong and the mainland introduced a general rule of origin (General Rule) based on a calculation of the value added to the products in Hong Kong. Products without PSRs would instantly enjoy zero tariff upon importation into the mainland, subject to the fulfilment of General Rule.
The CEPA origin criteria for Hong Kong items largely include (1) change in tariff heading; (2) performance of specific manufacturing process in Hong Kong; or (3) fulfilment of the regional value content (RVC) requirement, under which the value of originating raw materials and component parts, labour costs, as well as the product development costs, should account for at least 30% of the FOB value of the products when calculated by the build-up method, or the value of non-originating materials accounting for not more than 60% of the FOB value when calculated by the build-down method.
Overseas markets and green consumerism
Hong Kong companies are capable of meeting the technical requirements of relevant authorities in overseas markets. These include the safety requirements of UL/ETL listing or equivalent in the US, as well as the relevant safety directives and CE requirements of the EU. With regard to electromagnetic compatibility (EMC), Hong Kong companies should note that products sold to the US require compliance with FCC standards, whilst EU’s CE-mark also requires compliance with relevant EMC directives. Most electronic products for sale in the Chinese market have to be in compliance with the safety and other requirements of a unified compulsory product certification system known as 3C (China Compulsory Certification).
Hong Kong companies should also be attentive to the growing popularity of green consumerism. Consumers are generally conscious of environmental protection, especially in Europe.
Foreign policies trouble HK packaging manufacturers
As a result, more sustainable materials, like biopolymers, are increasingly being used by Hong Kong firms.
Hong Kong manufacturers produce a wide range of packaging materials, including paper containers, polyethylene (PE) packages, and polyvinyl chloride (PVC) packages, with mainland China being Hong Kong’s largest market.
Laws and regulations restricting the use of packaging materials have become more stringent worldwide. Packaging manufacturers are expected to meet higher environmental and sustainability standards, in order to help their customers fulfil the requirements in the countries where their products are sold.
As online shopping has accelerated, there has been a visible increase in demand for e-commerce packaging solutions. Packaging is expected to become more personalised for the purpose of marketing and brand differentiation. However, brands are also increasingly more aware of sustainable e-commerce packaging and are looking for ways to reduce packaging waste.
Industry features
The packaging materials industry can be divided into consumer packaging and industrial packaging. The former refers to the packaging of goods sold to consumers, primarily involving shopping bags, packaging bags, padded mailers, boxes, and gift wraps, etc. Food and beverage packages, such as PET bottles, laminated paper packages and flexible packaging, also fall within this category. Industrial packaging is mainly used for protection and transportation purposes. It includes vacuum packs, heat seals, shrink wrap, cartons, paperboard boxes, PS foam, air-bubble blister stuffing, and foam sheets.
Hong Kong manufacturers produce a wide range of packaging materials, including paper containers (such as corrugated carton boxes, paper carrier bags, paperboard boxes and pulp moulds out of newsprint and corrugated paper), polyethylene (PE) packages (such as bags for food and garment packaging, stretch film for wrapping and shrink film for packaging multiple items), PVC packages (such as films/tubings for wrapping consumer items and plates for blister cards) and metal containers for beverages and edible oils.
The local packaging materials industry is also supported by a strong printing industry. Some Hong Kong companies can offer value-added services, such as developing the packaging design along with the customer’s product development. For example, in the toy industry, the packing can be part of the playset to reduce wastage in packaging materials.
Mainland China is the largest export market for Hong Kong’s packaging materials industry, accounting for 65% of total exports in 2020. Demand for packaging materials on the mainland has been mainly driven by local production activities.
Items under SITC 582, which include plastic plates, sheets, film, foil and strips, make up the majority of Hong Kong’s exports of packaging materials, accounting for 64% of the total in 2020. It is also the leading category amongst packaging materials exported to the mainland and ASEAN, accounting for almost 80% of total exports of packaging materials to the mainland and about 50% to ASEAN.
Sales channels
Hong Kong’s exporters of consumer goods, such as garments, electronics products, toys, shoes, timepieces, jewellery, housewares and giftware, are the major customers of local packaging materials suppliers. Bag and container makers usually export their products directly to manufacturers or distributors overseas. These products include consumer packs, such as gift boxes, packaging bags, as well as cans and bottles.
Industry trends
Mainland China is a major consumer goods production centre that generates a mammoth demand for packaging materials. The growth in other businesses on the mainland has also boosted the demand for advertising, packaging, and printing. In the meantime, growing numbers of consumer goods manufacturers are outsourcing their packaging production to specialised packagers. These developments have created business opportunities for packaging subcontractors.
As online shopping has accelerated, there has been a visible increase in demand for e-commerce packaging solutions. Demand for paper boxes and labels is expected to grow the fastest, boosted by the increase in package volume. Packaging is expected to become more personalised to help
Mainland China is the largest export market for Hong Kong’s packaging materials industry, accounting for 65% of total exports in 2020 “Items under SITC 582 (plastic plates, sheets, film, foil and strips) make up the majority of Hong Kong’s exports of packaging materials”
Performance of Hong Kong’s Exports of Packaging Materials
Domestic Exports Re-exports of Chinese mainland origin Total Exports
SOURCE: Hong Kong Census and Statistics Department 2019 2020 Jan-Jun 2021 HK$ million Growth % HK$ million Growth % HK$ million Growth %
240 -19.4 261 8.8 206 101.4 21,480 -7.2 18,588 -13.5 9,683 11.4 10,658 -11.2 8,554 -19.7 4,776 20.4 21,720 -7.4 18,849 -13.2 9,889 12.4
with marketing and brand differentiation. However, brands are also becoming increasingly aware of sustainable e-commerce packaging and are looking for ways to reduce packaging waste. For example, leading online fashion retailer Zalora has started using recyclable packaging and has adopted reusable packaging bags for returned products from customers.
Flexible packaging has been gaining popularity in recent years, and it is likely to be increasingly used to replace or complement the packaging of product assortments that have traditionally been packaged in cans and bottles. One example of this trend is stand-up pouches, which are increasingly used in food and beverages packaging, especially for liquids. They are easy to store and highly practical to close or reseal. They also use fewer materials, which reduces shipping and logistics costs.
CEPA
The Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) was concluded in June 2003 and has subsequently been expanded in the following years. All products made in Hong Kong, subject to CEPA’s rules of origin, enjoy duty-free access to mainland China. Overall, the CEPA origin criteria for packaging materials mainly include the principal manufacturing or processing operations being carried out in Hong Kong, which confers essential characteristics to the final product.
General trade measures affecting exports
Many countries have imposed laws to regulate the responsibility of the producer for packaging materials. The trend is for a continued increase in recycling and recovery targets, in order to further reduce the impact of packaging waste on the environment. In 2018, the EU updated its rules on wood packaging materials used in the transport of certain commodities.
In early 2020, China announced regulatory initiatives to reduce the volume of plastic waste, in particular those resulting from online food delivery, logistics, and e-commerce. Single-use plastic bags and tableware are now banned in major cities and will be banned in all cities and towns by 2022. Postal delivery outlets in areas such as Beijing, Shanghai, Jiangsu and Guangdong will ban the use of non-degradable plastic packaging and disposable woven bags by the end of 2022.
In Singapore, producers of packaged products, such as brand owners, manufacturers, importers and retailers are now required to submit packaging data (including materials, weight and form of packaging imported or used) and provide a packaging improvement plan (3R plan) under the Resource Sustainability (Packaging Reporting) Regulations 2020.
Product trends
Sustainable packaging
The growing interest in environmental issues and the spread of more stringent legislations on the use of packaging materials worldwide are influencing the choice of materials used in packaging. Manufacturers are working towards eliminating unnecessary packaging and increasing the use of recycled content in their production. Bio-based renewable materials such as biopolymers are increasingly being used in packaging as they are often biodegradable and not toxic to produce. The growing concern amongst consumers about plastic pollution is also creating new opportunities in the market, such as plastic-free aisles in supermarkets and packaging-free refill retail stores.
Design with hygiene and safety features
Consumer awareness of hygiene has increased dramatically due to the COVID-19 pandemic and is likely to persist even after the pandemic subsides. These concerns can be addressed through new and improved packaging designs, especially for food and beverages. For example, the choice of packaging material substrate can affect the viability of virus, whilst using tamper-proof packaging can ensure protection against contamination.
Convenient packaging
As well as improved safety, additional functionality and added convenience are the general trends in the food and beverage packaging market. One example of this are pouches which feature handles and pouring spouts. These pouches can be heated in boiling water and stored under refrigeration and are especially ideal for soup and sauces packaging. There is also a trend for “retail ready” packaging which refers to packaged retail goods which are ready to be displayed to consumers immediately or with little set up.
Hong Kong edges out the franchise competition in Asia
Hong Kong’s franchising market has been developing steadily, with many well-known international franchise brands. According to Hong Kong Franchise Association’s estimates, around 43% of franchises in Hong Kong are in the catering business, 20% in retailing, and 37% in other services.
Franchising is an established model of business expansion, which is especially common for the food and beverage, retail and other services sectors, such as laundry and mini storage. In Hong Kong, a number of home-grown brands, including Store Friendly, Fitboxx, Kung Wo Tong and Quality Dry-clean, have adopted the franchise model targeting the local market to utilise franchisees’ financial resources and personal networks.
Many international franchise brands prefer well-established local companies with strong retail and management experience to be their master franchisees in Hong Kong. These master franchisees run the operations with their own teams and/or subcontract the operations to individual franchisees.
Developing Asian countries have begun to embrace franchising in recent years, as their rising middle-income class becomes more affluent and gravitates towards international brands. Many international brands have started to look for franchising opportunities in emerging markets.
Hong Kong has the edge in serving the growing franchising business in Asia, including its showcase role, track record of organising exhibitions, world-class supporting services, access to quality franchisees, the availability of industry talent, market sensitivity and extensive business connections in Asia.
Market characteristics
Since the 1970s, when McDonald’s and KFC started opening franchised restaurants in Hong Kong, the city’s franchising market has been developing steadily. Most of the well-known international franchise brands, including Pizza Hut, 7-Eleven, Subway, Starbucks, Five Guys and QB House, have a presence in Hong Kong. According to Hong Kong Franchise Association’s estimates, about 56% of the franchise operations in Hong Kong are local franchises. By industry, around 43% of the franchises in Hong Kong are in the catering business, 20% in retailing and 37% in other services, such as learning centre, laundry and dry cleaning.
Many international franchise brands prefer well-established local companies with strong retail and management experience to be their master franchisees in Hong Kong. These master franchisees run operations with their own teams and/or subcontract operations to individual franchisees. For example, Dairy Farm Group and Maxim’s Group are Hong Kong-based conglomerates that operate some big brands, such as Ikea, 7-Eleven, and Starbucks.
In Hong Kong, home-grown brands using the franchising model for local expansion is less common than in big economies with significant regional disparities. Still, there are a number of home-grown brands, including Store Friendly Self Storage, Fitboxx, Kung Wo Tong, and Quality Dry-clean that adopt the franchise model targeting the local market, to utilise the franchisees’ financial resources and personal networks.
Some others have even adopted the franchise model across the border. For instance, Chow Tai Fook Jewellery has about 2,650 jewellery points of sale in China operated by franchisees as of end-March 2021; AS Watson Group reached an exclusive franchise agreement with Dubai-based Al-Futtaim last year to venture into the Middle East market, with plans to open 100 stores in the region by 2025; and Houseware retail chain Japan Home has a total of seven stores in Malaysia, Cambodia, Vietnam, and Australia.
There is no specific franchise law in Hong Kong. Disputes arising from franchise agreements will be subject to the common law, especially the principles of contract law, and other applicable legislation, such as the Misrepresentation Ordinance, Trade Marks Ordinance, Copyright Ordinance, Registered Designs Ordinance, and Patents Ordinance.
About 56% of the franchise operations in Hong Kong are local franchises “There is no specific franchise law in Hong Kong. Disputes arising from franchise agreements will be subject to the common law”
Industry development
International franchising in Asia
International franchising facilitated by the increasing ease of global communications and technological development, is becoming a key trend in Asia, as its rising middle-income class becomes more affluent while gravitating towards international brands. As Asian consumers earn more, they increasingly crave the quality, convenience and service associated
with foreign brands. Sectors such as food and beverages, education, as well as personal and commercial services that cater to the needs and lifestyles of the middle-income class, offer high potential for franchising in the region. Taking Vietnam as an example, about 145 foreign brands have registered franchising businesses in the country, such as the American fast food chain Popeyes and Japanese convenience store Family Mart.
Fast-growing fitness franchises
Fitness is one of the fastest growing industry in the franchising world. As people become more health-conscious, demand for fitness centres is increasingly apparent. Besides the standard large-format gyms, consumers are also more interested in boutique fitness brands specialised in exercises such as boxing, pilates, and spinning. F45 Training, an Australian fitness franchise specialising in high intensity group workouts, has about 140 franchised gyms in Asia, including Hong Kong, mainland China, South Korea, ASEAN countries and India. Other examples of fitness franchises with presences in Asia include Anytime Fitness, Snap Fitness, and Orangetheory Fitness.
HK as a franchising hub
Hong Kong has the edge in serving the growing franchising business in Asia, including its showcase role, track record of organising exhibitions, world-class supporting services, access to quality franchisees, the availability of industry talent, market sensitivity and extensive business connections in Asia. Hong Kong could serve as a two-way springboard for international franchisors looking to gain access to the Asian markets, and for Asian brands to venture into the global marketplace.
To help expand the franchise business and connections amongst Hong Kong companies, the Hong Kong Trade Development Council or HKTDC launched the Hong Kong International Franchising Show in 2015. The event is a one-stop platform for companies and entrepreneurs to look for franchising brands, identify business partners and get franchising advice. Held online in December 2020, the sixth edition of the Show featured a series of webinars hosted by industry experts to share the latest market trends and business tips.
Franchising opportunities in Mainland China
According to the China Chain Store & Franchise Association, the total sales of the country’s top 100 franchises reached RMB2,407b in 2020, with the total number of stores of the top 100 franchises rising 8% to approximately 177,800. With its expanding middle-class consumer base and urban population, mainland China is one of the top potential franchise markets in Asia.
One of the difficulties encountered by international franchisors in mainland China is finding qualified franchisees. Moreover, registering trademarks and IP, applying for the right licences, and setting up legal entities can be formidable challenges. Hong Kong companies may act as the master franchisees or area developers to help international franchisors deal with the challenges in mainland China. With decades of experience doing business in the mainland, Hong Kong companies are trusted partners for international franchisors, helping to manage the mainland franchisees, deal with bureaucracy, handle licence applications, fulfil import requirements, manage supply chains, and adapt to local needs and tastes. At the same time, Hong Kong businesses familiar with the international market, business practices and culture, can also serve as agents to help mainland companies expand overseas through franchising.
CEPA
Amongst other provisions, CEPA further opens up the mainland market for Hong Kong products and the distribution business to Hong Kong companies. Under the Agreement on Trade in Services, Hong Kong service suppliers are granted national treatment to establish commercial presence for franchising in mainland China.
Fitness is one of the fastest growing industry in the franchising world
Digital printing takes centre stage in Hong Kong
Direct imaging from computer to printer saves time and costs.
Most printing companies in Hong Kong are small and medium enterprises (SMEs). They produce a wide range of printing materials, such as brochures, paper and paperboard labels, and children’s books.
Major printers have relocated production to mainland China to reduce operation costs, but many still maintain offices in Hong Kong to receive overseas orders and provide design, editing, and electronic publishing services.
Many emerging trends in printing pertain to the advent of new technology or production techniques. 3D printing has caught significant attention within the print industries and more utilisation is expected in the future. 3D printing technology will become increasingly low cost and support rapid prototyping processes and manufacture of end-use parts.
Industry features
Printing is a support industry for publishing and advertising, and also for various light consumer goods industries (toys, food, cosmetics, etc). Most printing companies in Hong Kong are SMEs. They produce a wide range of printing materials, including books, booklets, brochures and leaflets, and paper and paperboard labels, advertising materials, commercial catalogues, calendars, postcards and greeting cards. Some specialise in the production of higher value-added/hi-tech printing products, such as children’s novelty books with pop-ups and additional objects, cheque books, passports, bills and statements, securities, and prospectuses. Creating these products requires considerable specialist skill, substantial capital investment, and confidentiality.
Major printers have relocated production to mainland China with purpose-built plants to reduce operation costs. Such development has changed the workflow and logistics and greatly improved efficiency and output quality. However, they still maintain their offices in Hong Kong to receive overseas orders. The ability to meet high-quality requirements has allowed Hong Kong to become a major global printing and publication centre, despite the increasing price competition from mainland printers. Rising labour costs on the mainland are encouraging greater automation and mechanisation. Automation can also reduce human errors whilst increasing efficiency, productivity, and quality.
Overseas customers are increasingly looking for faster turnaround and shorter delivery times in order to maximise return through smaller but more frequent orders. Hong Kong printers are known for quality, quick delivery, competitive pricing, and the ability to cope with short-notice printing jobs. Their quality is comparable to that of printing businesses in the US, Germany, and Japan, the pioneers in printing technology. Hong Kong printers are also known for their inventiveness and willingness to find solutions to production problems.
Sales channels
A large share of the export business is attributable to orders received directly from overseas countries. This also includes orders from major international publishers in Hong Kong. Export orders are mainly handled by larger printers or dealers, who have established business relationships with overseas customers. In an effort to capture overseas business, large Hong Kong printing companies have established offices overseas.
In order to expand business networks, explore market opportunities, and promote their company image abroad, Hong Kong manufacturers and distributors participate in trade fairs and study missions organised by the Hong Kong Trade Development Council (HKTDC), such as the Hong Kong International Printing and Packaging Fair. Another important international trade fair is Germany’s Drupa.
Industry trends
Many emerging trends in printing pertain to the advent of new technology or production techniques. Digital printing has gradually developed and applied in a wide range of fields within the printing industry. Inkjet has become a preferred choice for most magazine/ book printers with the improvements of inks which are able to stick to gloss coated paper without the need for pre-treatment. 3D printing has caught significant attention within the print industries and more utilisation is expected in the future. 3D printing technology will become increasingly low cost and support rapid prototyping processes and manufacture of end-use parts.
E-commerce will continue to be an important channel for procurement in printing. The clumsy processes of specifying
3D printing has caught significant attention within the print industries and more utilisation is expected in the future “Rising labour costs on the mainland are encouraging greater automation and mechanisation”
Performance of Hong Kong’s Exports of Printed Matter
Domestic Exports Re-exports of Mainland China origin Total Exports
SOURCE: Hong Kong Census and Statistics Department 2019 2020 Jan-Jun 2021 HK$ million Growth % HK$ million Growth % HK$ million Growth %
1,374 +31.0 1,053 -23.4 473 -0.8 15,735 +0.8 12,805 -18.6 6,808 +14.9 13,254 -5.3 11,148 -15.9 5,772 +13.2 17,110 +2.7 13,858 -19.0 7,281 +13.8
requirements, enquiries, checking the sample draft, amending information, confirming the order and so on, can all be done online. Besides, through the online portal, consumers can receive quotations with greater ease and speed, and products such as banners and brochures can be ordered and shipped more quickly.
Automation is another trend. This helps cut costs, improve quality and speeds up the production process. For example, a printer can set up pre-designed templates for frequent print orders such as business name cards so that they will be readily available to print on demand. The automated function of bulk uploading allows business name cards for multiple people to be ordered at the same time with a single digital file, saving time and effort and ensuring consistency. With the rise of on-demand printing production in smaller quantities, automation also allows printers to make adjustments and changes quickly with guaranteed precision and productivity.
Advertising and marketing
Advertising and marketing materials would remain one of the largest sectors of the printing industry, despite the rise of online advertising. Posters, flyers, brochures, and other promotional materials are now printed mainly using digital technology. Digital printing enables direct imaging – sending texts and graphics directly from the computer to the printing machine without the use of plates. This shortens production time and cost and improves speed and accuracy. It is easy to operate and is suitable for printing small quantities where flexibility, short lead time, and customisation are important. Digital printing also enables personalisation in packaging.
Some printers are also offering the “total solution” service, which includes auxiliary services like design, data-processing, translation and editing, and electronic publishing. A number of large printers have developed vertically, such as manufacturing or trading paper, or forming strategic partnerships with suppliers, in order to minimise the effects of paper price fluctuations and allow the company to have better control over material supplies.
Product trends
Interactive design and new substrates
Traditional printed products need more interactive designs to meet the emerging demands of various market segments. Children books, for example, are becoming more sophisticated as children now expect to interact with them. They may listen and talk to them, use them to build models or solve puzzles, or even play with soft toys that are housed inside the book. C&C Joint Printing, a leading printer with almost 40 years of operations in Hong Kong, incorporated augmented reality (AR) in the production of The Story of Gingerbread Man children book to create a more fun reading experience. The ability to print on non-paper materials such as glass, textiles, and metal has also become more important for printing companies to enhance offerings and attract more customers.
Personalisation
With the rising adoption of inkjet technology in commercial printing, printers can create more personalised books such as planners and notebooks. It allows personalisation in all aspects, including the cover, back and spine design, font and colour as well as the interior design and format.
Sustainability
As publishers pledged to be more environmentally friendly, the focus on sustainable printing practices will inevitably continue. Print facilities are using more environmentally friendly supplies such as recycled paper and synthetic paper, polyester-based fabrics, UV ink, and soy/vegetable-based ink. The chemical-free plate system has also been introduced. Some printers are also embracing technologies such as on-demand printing and variable data printing as well as implementing in-house recycling facilities in order to reduce wasteful production practices caused by overprinting.
CEPA
CEPA was concluded in June 2003 and subsequently expanded in the following years. All products made in Hong Kong, subject to CEPA’s rules of origin, enjoy duty-free access to the mainland. Detailed information is available from this website.
General trade measures affecting exports of printed matters
The US Consumer Product Safety Improvement Act of 2008 requires manufacturers and importers to show that products intended for children under 12 do not contain harmful levels of lead and phthalates. This applies to art materials, crafts, books, and magazines marketed to children under 12 years old.
Hong Kong unveils roadmap to a clean and green 2035
Amongst the measures include the halt of fuel-propelled private cars’ registration and legislation of EV schemes.
Hong Kong’s environmental industry focuses on six key business areas, namely (1) water conservation and pollution control, (2) air and oadour pollution control, (3) energy conservation, (4) waste treatment, disposal and recycling, (5) noise control and mitigation, and (6) environmental consulting services.
The value added of Hong Kong’s environmental industry amounted to $9.9b in 2019 (or 0.4% of GDP). Employment by the industry reached 44,670 in the same year, accounting for 1.2% of Hong Kong’s total.
Leveraging Hong Kong’s unique strengths in the global technology revolution, green technology is one of the Hong Kong Science Park’s five core technology clusters.
Phase 3 of the Hong Kong Science Park was completed in April 2016. O·PARK1, Phase 1 of the organic resources recovery centre, locating at Siu Ho Wan in North Lantau commenced operation in July 2018.
The government provides funding supports to environmental tech related research and development (R&D) projects under the Innovation and Technology Fund (ITF), which has approved 179 projects since its establishment, with total funding exceeding $375m.
Hong Kong and mainland China have further strengthened cooperation in the environmental industry, after the Agreement on Economic and Technical Cooperation was signed on 28 June 2017.
Industry features
The environmental industry is widely recognised as a new growth sector. According to the latest available figures, the value added of Hong Kong’s environmental industry grew by 5.8% year on year to $9.9b in 2018 (or 0.4% of GDP). Employment by the industry reached 44,130, accounting for 1.1% of Hong Kong’s total.
The environmental industry in Hong Kong consists of mainly small and medium-sized enterprises, which largely focus on six business areas, including (1) water conservation and pollution control, (2) air and odour pollution control, (3) energy conservation, (4) waste treatment, disposal and recycling, (5) noise control and mitigation, and (6) environmental consulting services. Some companies are also engaged in waste and scrap import/export and wholesale trading.
Mainland China is one of the fastest growing and most important environmental technology and related services markets for Hong Kong companies. According to the World Energy Investment Report 2021 by the International Energy Agency (IEA), mainland China is an important world destination for energy investment. The Chinese government aims to achieve carbon peak by 2030 and carbon neutrality by 2060. In the latest 14th Five-Year Plan (2021-2025), the Chinese government will actively develop green-related industries, such as energy conservation and environmental protection, clean manufacturing, clean energy, ecological environment, green infrastructure, and green services, etc. Furthermore, Beijing will also promote the development of wind and solar energy, implement green building policies, and encourage the use of green building materials. These measures are expected to further boost environmental industry development in mainland China, creating opportunities for HK companies.
Low carbon and emission reduction
Hong Kong has long been active in overcoming the challenges brought by global warming. In June 2021, the government announced the Clean Air Plan for Hong Kong 2035, setting out the vision under the slogan “Healthy Living · Low-carbon Transformation · World Class”. The Clean Air Plan covers six major areas of action, namely green transport, liveable environment, comprehensive emissions reduction, clean energy, scientific management and regional collaboration.
With regard to green transport, the government issued the Hong Kong Roadmap on Popularisation of Electric Vehicles in March 2021. The Roadmap introduced a series of measures, such as stopping new registration of fuel-propelled private cars in 2035 or earlier; promoting trials for electric public transport and commercial vehicles including buses, public light buses, taxis and goods vehicles, and striving to legislate a producer responsibility scheme for retired EV batteries in the next few years.
The Hong Kong Roadmap on Popularisation of Electric Vehicles introduced a series of measures, such as stopping new registration of fuel-propelled private cars in 2035 or earlier “Hong Kong and mainland China have further strengthened cooperation in the environmental industry after the Agreement on Economic and Technical Cooperation was signed in 2017”
Industry Features
Value added (HK$ Mn) Employment (Number)
SOURCE: Census & Statistics Department, HKSAR
In the clean energy sector, the government is urging power companies to phase out existing coal-fired units with natural gas progressively from now to 2030.
Green building
In recent years, many countries have introduced green building certification systems to provide indicators for building performance and encourage the adoption of low-carbon construction methods for structures that are newly built, undergoing renovation, or already occupied. Common green building certification systems in Hong Kong include the Leadership in Energy and Environmental Design by the US Green Building Council and BEAM Plus New Buildings by the Hong Kong Green Building Council.
Hong Kong’s first zero-carbon footprint building, the Zero Carbon Building, opened in Kowloon Bay in 2012, featuring over 80 types of green technology to reduce greenhouse gas emissions. The Building has won recognition and various awards for its innovation environmental performance, including the National Energy Globe Award 2015 by the Energy Globe Foundation.
In 2019, the government introduced Green Schools 2.0 to enhance energy efficiency in schools. Solar Harvest, a Government programme under Green Schools 2.0, installs solar energy generation systems for eligible schools and welfare NGOs for free. In the 2021-2022 Budget, the Government earmarked $1b to install small-scale renewable energy systems at government buildings and infrastructure, $150m to conduct energy audits and install energy-saving appliances, free of charge, for NGOs subvented by the Social Welfare Department, and inject $1b into the Recycling Fund.
Development of green tech
Leveraging Hong Kong’s unique strengths in the global technology revolution, green tech is one of the Hong Kong Science Park’s five core technology clusters. The Science Park provides a full range of facilities and equipment to support the development of green tech in areas of building energy efficiency, environmental solutions, alternative energy, waste disposal and recycling, electric vehicles, and green electronics for infrastructure projects and carbon audits (carbon footprint).
Phase 3 of the Science Park completed construction in April 2016. This project was one of the government’s initiatives to boost the development of green tech in Hong Kong and to attract high-tech investment by private companies. It can accommodate about 150 green tech companies and create 4,000 green tech research and development job positions.
In 2019, the China Everbright Green Technology Innovation Research Institute set up its global R&D headquarters in the Science Park. As one of Asia’s largest waste-to-energy project investors and operators, Everbright International is actively looking for collaborations with other innovators at the Science Park to drive green innovations.
Examples of successful green tech enterprises in Hong Kong include Dunwell Enviro-Tech (Holdings) Ltd at Yuen Long Industrial Estate. Dunwell provides used oil and wastewater treatment, recycling, reuse services and turns waste lubricating oil into cost-effective finished oil using its patented vibrating membrane advanced treatment (VMAT) technology. Besides, the ASB Biodiesel plant, a foreign investment project established in Tseung Kwan O Industrial Estate, uses Austrian technology to process waste oil, such as waste cooking oil and grease trap oil, with the capacity to produce 100,000 tonnes of low-carbon transport fuel per year.
Located at Siu Ho Wan in North Lantau, O·PARK1 commenced operation in July 2018. Using anaerobic digestion technology, O·PARK1 can convert 200 tonnes of food waste into electricity each day. O·PARK2 and O·PARK3 located at Sha Ling of North District and Shek Kong of Yuen Long respectively, are designed to convert 300 tonnes of organic waste per day. Currently under construction, O·PARK2 is scheduled to commence operation by 2023.
The government also provides funding support to environmental technology-related R&D projects under the ITF managed by the Innovation and Technology Commission. As of March 2021, the ITF has approved over 190 environmental technology-related projects, with the total funding exceeding $388m.
Hong Kong-Guangdong crossboundary cooperation
In April 2008, the government launched a Cleaner Production Partnership Programme to encourage Hong Kong-invested enterprises in Guangdong to actively participate in improving the quality of the environment in the region. In light of the environmental benefits and positive feedback from industry, the Programme has been extended until 31 March 2025 according to 2020-2021 Budget. Under the Programme, assistance is given to Hong Kong factories in the Pearl River delta (PRD) to use cleaner production technologies and operation mode so that concerted efforts are made to create a cleaner environment.
2018 9,867 44,130
2019 9,868 44,670
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High-Flyers 2021
Profiles of Hong Kong’s Outstanding Enterprises and Business Leaders
Archikris Design Group 44 | Elite Concepts Ltd 46 | FEED HK 48 | Fidelity International 50 Hang Seng Bank 52 | Mayer & Associés 54 | PrimeCredit Limited 56 | Soteria Trust 58 Standard Chartered Bank 60 | UMP Healthcare Holdings Ltd 62
