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Trade and Investment between GBA and ASEAN and the Roles of Hong Kong (Executive Summary)
29 November 2021
Doris Fung
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The Association of Southeast Asian Nations (ASEAN) is made up of 10 Southeast Asian economies, namely Indonesia, Thailand, Malaysia, the Philippines, Singapore, Brunei, Vietnam, Laos, Cambodia and Myanmar. The huge population and the increasingly favourable business environment in the region have proven to be a magnate to foreign investment.
Before the Covid-19 outbreak, foreign direct investment in ASEAN during the period 2010-2019 grew at an average annual rate of about 6%. Meanwhile, China’s share of ASEAN’s trading and investment activities continued to climb, with both parties becoming each other’s largest trading partner. As the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) moves towards high-end development and enterprises within the area seek to expand outwards, the ASEAN market is increasingly becoming a preferred trading partner and investment destination.
HKTDC Research, in collaboration with United Overseas Bank Hong Kong (UOB Hong Kong), conducted an online questionnaire survey and in-depth interviews in mid-2021 with GBA-based enterprises to gather their views on trading with and investing in ASEAN, as well as the opportunities, difficulties and challenges facing them in that market. The survey aimed to gain an understanding of the role played by Hong Kong in facilitating trade and investment between the GBA and ASEAN, as well as GBA-based enterprises’ demand for Hong Kong services.
The survey targeted GBA-headquartered enterprises which are either currently engaged in trade, investment or business operations in ASEAN or have not yet entered the ASEAN market but plan to expand into that market in the next three years. The survey covered five major industry sectors, namely (1) consumer goods, (2) industrial goods, (3) business, professional and financial services, (4) real estate, hospitality and construction, and (5) technology, media and telecoms.
Majority of Respondents Plan ASEAN Expansion
The pace of development in the 10 ASEAN member countries is not the same and each has its own characteristics and positioning, so GBA-based enterprises’ business distribution in ASEAN differs in accordance with the characteristics of various industries. For instance, the consumer goods sector tends to be attracted by the increasingly mature consumer market in Malaysia, while the industrial products sector prefers the Thai market, and professional services mainly concentrate in Singapore.
However, an overview of the surveyed enterprises’ current business footprints and their expected changes in the next three years shows that the trading and investment activities of GBA-based enterprises in ASEAN are mostly concentrated in Singapore, Malaysia, Vietnam and Thailand. Among the respondents who have already made an entry into the ASEAN market, over half have business operations in these four countries.
On a rating scale of 1 to 10, the average scores of respondents’ likelihood of further expanding their business in these countries in the next three years ranged from 6.56 to 6.89, indicating that in the near future these countries will remain the most popular trading partners and investment destinations for GBA-based enterprises. While the popularity scores of the Philippines, Indonesia and Cambodia are about the same, Laos, Myanmar and Brunei have yet to gain favour with GBA-based businesses.
ASEAN as Market and Production Base
ASEAN is a huge market with a combined population of 660 million in 2020, accounting for 8.5% of the world population. The presence of a young population, rapid economic development in recent years and the emergence of the middle class has made ASEAN a market with enormous potential for GBA-based businesses. As such, over 80% of respondents are conducting sales in the ASEAN countries where they have business operations, with the exception of Cambodia and Myanmar.
29.1% of respondents pointed out that cost-effective operation in ASEAN is an advantage, while 28.3% are attracted by its huge market for goods and services. Given that ASEAN is both an attractive market and a competitive location for production facilities, GBA-based enterprises can capitalise on its favourable business environment to expand markets and provide goods and services meeting local demands.
However, not many GBA-based enterprises currently use ASEAN as their production or sourcing base, probably due to the poor infrastructure in the region. Nearly one-third of the respondents (31.2%) pointed out that the infrastructure in ASEAN is poor or inadequate. Yet, 28.2% of them agreed that the availability of abundant resources in ASEAN is advantageous to production.
When infrastructure in the region starts to improve, the likelihood of GBA-based businesses setting up production or sourcing bases there will rise. In fact, over 10% of the surveyed enterprises indicated that they would engage in production or sourcing in Vietnam and Thailand in the next three years, an increase over the current 7.2% and 4.6% respectively.
Hong Kong Plays Bridging Role
As the penetration rate of GBA-based businesses in the ASEAN market is bound to rise markedly, it will strengthen the positioning and development of ASEAN as a market, production or sourcing base, and regional office location for these industry players. In the course of building a multinational industry chain, finance is an important link, especially where fund raising, cross-border payment and global capital management are concerned.
At present, ASEAN only plays a minor role as the financing centre for GBA-based businesses. Hong Kong, with its close connections with foreign markets and its world-class financial and professional services, can serve as the bridge linking the GBA and ASEAN in their trading and investment activities. When respondents to the survey were asked to rate the importance of Hong Kong in facilitating their current trading and investment activities in ASEAN on a scale of 1 to 10, the average score given was 7.33. The larger the size of the enterprise, the more importance is given to the role of Hong Kong as GBA-based enterprises’ platform for investing in ASEAN.
On Hong Kong’s connectivity with other GBA cities, GBA-based enterprises are very satisfied with the city’s logistics network in the region, with over half of the respondents (50.2%) giving a score of between 8 and 10. The respondents are also satisfied with the availability of a transparent regulatory regime (average score 7.23) and a great variety of financial products and banking services (7.18) in Hong Kong. However, it is worth noting that the ratings given by mainland GBA enterprises to each item of Hong Kong’s strengths are higher than those given by their Hong Kong counterparts. This shows that Hong Kong’s southbound connectivity seems to be stronger than its northbound connectivity.
As regards Hong Kong’s connectivity with ASEAN countries, the cross-border flow of resources between Hong Kong and ASEAN is also impressive, with the flow of products and flow of human resources scoring 7.23 and 7.16 respectively. Moreover, the respondents also approved of Hong Kong’s extensive business networks in ASEAN and the minimal exchange and capital controls between the SAR and ASEAN, scoring 7.18 and 7.17 respectively. All these are drivers helping GBA-based enterprises expand into the ASEAN market.
Hong Kong’s Connectivity Post-pandemic
Hit by the Covid-19 pandemic, in the last two years countries all over the world have been implementing strict border control measures, which have dampened trading and investment activities. While the degree of economic recovery in the post-Covid-19 period has yet to be seen, it can be expected that as enterprises resume their stalled expansion plans, cross-border trading and investment activities are bound to resurge. Hence, the services provided by Hong Kong will be in demand to support the huge trade and investment flows post-pandemic.
On GBA-based enterprises’ trading and investment activities in ASEAN, 45.4% of respondents indicated that they often or sometimes use Hong Kong’s meetings, incentives, conferences and exhibitions (MICE) services, with 16.3% of them saying that they would use these services even more often in the next three years. Trailing MICE services are logistics and supply chain management (39%) and financial services (37.7%). With an extensive network of professional services in place, Hong Kong can help GBA-based enterprises reconnect with buyers and business partners in ASEAN.
Looking to the future, it is the hope of the respondents that Hong Kong can provide a one-stop business centre and integrate information on services available in the SAR for the overseas expansion of GBA-based businesses so that they can better understand the functions of the Hong Kong platform. It can be expected that Hong Kong, by further strengthening the connectivity with other GBA cities and ASEAN countries, will play a greater role in facilitating bilateral trade and investment flows between the GBA and ASEAN.
The opinions and views expressed are those of the interviewees and do not necessarily reflect the views of HKTDC or UOB. HKTDC or UOB shall in no way be responsible for the accuracy, completeness or timeliness of the information provided by them, and for any loss associated with the use of such information.
Note: This article forms part of a joint study conducted by HKTDC Research and UOB: “Trade and Investment Between GBA and ASEAN and the Roles of Hong Kong”.
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- Finance & Investment
- Hong Kong
- Mainland China
- ASEAN
- Hong Kong
