Hong Kong is still an attractive place for overseas enterprises to do business, but German companies would like to see the city being more competitive in the two sectors and in education, as well as bolstering connectivity with the Chinese mainland. Oswald Chan reports from Hong Kong.

The 26th anniversary of the establishment of the Hong Kong Special Administrative Region has seen the city make good progress in cementing itself as Asia's world city, and this will strengthen its ability to attract overseas companies and talents.

"In many ways, Hong Kong is still stacking up really well," says Johannes Hack, president of the German Chamber of Commerce, Hong Kong. "We can focus on what we can do to become more competitive."

In an interview with China Daily, Hack says the SAR's competitiveness in the context of regional competition has to be examined from a wider perspective.

"Looking at Singapore is one important aspect, but Hong Kong also needs to look beyond Singapore and ask: How are we stacking up?" noting that the Lion City is indeed a serious competitor for Hong Kong in areas like wealth management.

"It is not just Singapore. Dubai is also trying very hard to be an upcoming place for finance. At the moment, it is not terrific but, further down the road, it (Dubai) may become more important."

The International Institute for Management Development, in the World Competitiveness Yearbook 2023, ranked Hong Kong as the world's seventh-most-competitive economy, compared with fifth place in 2022.

To sharpen Hong Kong's edges, Hack suggests the city should embrace digitalization, leverage its niches in green finance, improve the education of the workforce, and bolster links with the Chinese mainland.

Business digitalization is particularly important for the 500 to 600 German companies, branches and regional offices operating in the SAR, with most of them in the logistics and sourcing sectors, according to German Chamber of Commerce, Hong Kong. But it is different in Guangdong province on the mainland, where the majority of the German firms operating there are engaged in manufacturing services, with huge production facilities.

Although German enterprises in Hong Kong are not as financial services-oriented as those from the United States or the United Kingdom, they do benefit from financial services provided by Hong Kong in trade finance, currency hedging and other financial products.

"For trading companies, Hong Kong's trade-hub status is very important because the city is a gateway to the mainland and the whole of ASEAN (the Association of Southeast Asian Nations) region as well. German trading companies can do business with all the countries in the region," says Hack.

German supermarket chains and major retailers throughout Europe and the world have their sourcing companies in Hong Kong, while the mainland is still the most important source of goods. German sourcing companies use their Hong Kong bases to run their operations in the mainland and other places.

"Hong Kong occupies a central geographical position in the region, with all the infrastructure sourcing companies need, such as quality control, laboratories and quality assurance," notes Hack. "Singapore has the advantage of oil trading and other trading activities but, for the sourcing business, Hong Kong is clearly the place with the talents and infrastructure."

The chamber chief says Hong Kong is also an important sourcing base for German trading companies that are looking at supply-chain sources beyond the mainland. German companies in Hong Kong currently are more focused on stabilizing their operations on the mainland because of a certain level of recalibration of global supply chains.

Digital maritime hub

In logistics, Hong Kong is even more important to German companies. "Hong Kong International Airport is superefficient as it is linked to all the ASEAN member states with all types of logistics support. Air logistics in Hong Kong is extremely well established. The air cargo industry and an efficient airport, undoubtedly, is a huge asset for Hong Kong," says Hack.

According to Airports Council International's Air Cargo Traffic Dataset 2021, Hong Kong topped the list of the world's airfreight hubs.

Hong Kong may be doing well in air logistics, but it also needs to catch up in the shipping industry. "There are now a number of bigger ports on the mainland that can accommodate bigger vessels with greater bulk. Therefore, if Hong Kong is still unable to catch up in its port operations, it is, probably, not so good," Hack warns.

Xinhua and Baltic Exchange had ranked Hong Kong as the world's fourth international maritime center in the 2022 Xinhua-Baltic International Shipping Centre Development Index. Despite this status, Hong Kong should consider cultivating a maritime cluster to serve the global shipping industry, says Hack. "Port operation is a very cyclical and slightly fragile business amid strong market competition. Therefore, if you can innovate, you can probably have a better chance of making the future."

"The HKSAR should try to transform itself into a digital maritime hub to provide better digital solutions and become a template for other ports to develop essential technologies in forwarding and random logistics. The city can export or showcase that this is a state-of-the-art port operation," says Hack.

He adds that Hong Kong should maximize its traditional strengths in logistics management to embark on digitalization of the logistics business to make itself a digital logistics hub. According to the International Institute for Management Development, the SAR ranked third in the Asia-Pacific region and ninth globally in digital competitiveness in the World Digital Competitiveness Ranking 2022.

Other key business potential German companies see in Hong Kong are in green finance and financial technology. More German pension funds are considering whether to put their money in green investments in Asia, with the mainland as the focus, according to Hack. But the problem is, how to ensure the assets invested in really are green.

"Hong Kong has a taxonomy to define a green investment. If Hong Kong can utilize its taxonomy to assure German investors that their green assets are genuinely green, then clearly a lot of capital inflows or outflows will be through Hong Kong. It is more like the connect schemes that help German investors to understand what kind of assets they are investing in. I think this would be pretty important."

The SAR government published the Green Bond Framework in 2019 and updated it in February 2022, reflecting the government's continued climate commitments and strategies, and aligning the city with the latest international standards and practices in the green bond market.

According to the Climate Bonds Initiative, by late 2022, the SAR government had issued green bonds amounting to $9.8 billion since 2019 in various currencies, including the US dollar, the euro, the renminbi and the Hong Kong dollar. The issuance volume was more than that of any other government in the Asia-Pacific region.

German startup companies also see the potential of financial technology in Hong Kong. Hack believes Hong Kong has a niche in fintech, but it still needs to strengthen itself in other areas of the innovation and technology industry. "In other areas of the inno-tech industry, Hong Kong may still be thinking of what to focus on - life sciences, artificial intelligence or robotics?"

Vital English proficiency

Educating the workforce is equally vital if Hong Kong is to keep its international hub status.

Hack says maintaining the English proficiency level is essential. "The German Chamber of Commerce, Hong Kong would like to see English remain strong here. This is the basic thing that can help. You want to attract talents from European countries, so Hong Kong people need to communicate with them in English. The city should also welcome academic qualifications from the European continent to attract more European talents."

The number of international schools and the vibrant cultural infrastructure in Hong Kong are also important. "Expatriates want their children to attend international schools, so when they return to their home countries, their children can be easily transferred back to their respective educational systems. Hence, having a strong international school system is important because it makes the city attractive to expatriates," Hack says.

Last but not least, the SAR should ensure and step-up travel connectivity between Hong Kong and the mainland to facilitate the operations of German companies in the city.

Hack recalls having visited the mainland twice since the resumption of normal travel with Hong Kong, but says the cross-boundary travel process is "still not easy".

At present, German companies in Hong Kong or on the mainland are trying to reestablish trust and reengage with their clients after three years of COVID-19 restrictions before embarking on any expansion plans. Therefore, seamless cross-boundary travel between Hong Kong and the mainland is essential.

"Our chamber is trying to tell the SAR government to make it simpler for expatriates to travel between Hong Kong and the mainland. This would allow expatriates to work on the mainland on weekdays and return to Hong Kong on weekends. Expatriates are more willing to live in Hong Kong."

Hack agrees that Hong Kong's biggest advantage is its close proximity to the mainland, so easier cross-boundary travel would be super-helpful for the city in maintaining its international hub status.

A survey by global real-estate advisory firm CBRE shows that Hong Kong and Singapore are neck-and-neck in the race to be regional headquarters in the Asia-Pacific, and to be competitive in regional influence, financial and technology industry scale, talent availability and attraction, residential and office rents and prices, as well as the availability of offices.