China's "Going Out" Initiative: Jiangsu/YRD Demand for Professional Services (Executive summary)

Chinese enterprises have stepped up their “going out” initiative in recent years in order to seek co-operation with foreign partners and carry out direct investment activities. They are utilising mergers and acquisitions to establish an overseas sales network, while at the same time actively working to “bring in” foreign partners to help open up the Chinese market. As a result, China is emerging as one of the world’s major outward investors. To further encourage this, the Chinese government recently announced measures to significantly ease controls on outward investments. The aim is to promote business transformation and upgrading, making Chinese enterprises more competitive in the long run.

China’s coastal regions are seen as the country’s major economic engines. They have always been the principal areas for foreign economic co-operation, particularly the Pearl River Delta (PRD), which is in close proximity to Hong Kong, and the Jiangsu/Yangtze River Delta (YRD). The more mature YRD companies are increasingly seeking overseas investment and co-operation opportunities, turning the YRD region into another major source of outward investment for China.

According to a recent HKTDC survey, most YRD companies want to increase investment in order to upgrade and improve their product design and R&D capabilities, as well as to develop and promote their own brands. Their major objective is to further explore the domestic market. A similar HKTDC investigation in Guangdong Province found that PRD companies tended to factor in both the mainland and overseas markets. A comparison of the two surveys indicates that companies in the two delta regions have differing strategies for transformation and upgrading.

Despite this, YRD companies want to seek professional services support from outsiders, including product development and design, brand and promotion strategy, marketing, finance, business consultancy, and legal and accounting services. By “going out” they hope to secure partners for introducing foreign brands to the Chinese market, jointly developing an overseas sales network, or technological co-operation to assist them in developing new business and new markets.

The survey also found that YRD companies are most interested in seeking out these professional services and foreign partners in Hong Kong. In fact, Hong Kong is a major destination for China’s outward direct investment. It is also the place where Jiangsu/YRD enterprises make the largest outward investment. Not only does Hong Kong provide investment opportunities in its local market, it is also the springboard for YRD funds to invest overseas.

With advantages such as free flow of capital, extensive international communications resources and an international level of professional services, Hong Kong has real advantages when it comes to giving support to the “going out” activities of mainland enterprises. YRD companies regard Hong Kong as being able to provide the full range of professional services needed to solve any practical problems encountered in the course of investing, and effectively reduce investment risks, including:

• Corporate finance services to help enterprises obtain lower cost of funds, as well as optimise a combination of funding sources to promote enterprise “going out” to invest overseas.

• Hong Kong service providers offer effective tax planning solutions, improve financial and tax arrangements for enterprise “going out” and cut down unnecessary financial burdens.

• Hong Kong can facilitate contact with well-known foreign brands for cross-border brand co-operation, and introduce high-end product design to accelerate the development of China and overseas markets.

• Given the professional duty of confidentiality, professional services providers in Hong Kong can provide appropriate confidentiality arrangements to avoid unnecessary investment risks.

• As well as providing technical support, Hong Kong’s technology platform offers risk assessment, financing and other services to technology projects, and can effectively assist enterprises in finding the necessary technology to compete in the global marketplace.

• Hong Kong is familiar with foreign markets and investment environments. Hong Kong service providers carry out due diligence for businesses, and help the overseas operations of enterprises meet the stringent requirements of customers in terms of quality and logistics.

Indeed, Hong Kong service providers have been acting on the behalf of mainland enterprises for many years in matters of trade and investment in both Hong Kong and overseas markets. In addition, Hong Kong provides mainland enterprises with other professional services, including brand strategy, due diligence, sustainable management risk assessment, licensing arrangements, and international certification and testing. With the mainland and the Jiangsu/YRD enterprises accelerating the pace of “going out” and “bringing in”, this is bound to provide more opportunities for Hong Kong service providers.

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