Hong Kong as a Corporate Treasury and Trade Centre

In an interview with HKTDC Research, Ding Baoli, Treasury Director of Guangdong Haid Group, said that in the face of the complexity involved in operating business on a multinational level, the financial and trade services offered by Hong Kong play an important role in the company’s development in overseas markets. He predicted that in the years to come the group will rely more on Hong Kong as its treasury centre and trade centre.

Southeast Asian Agriculture Generates Opportunities

Haid’s business scope spans the upstream and downstream of the agriculture and livestock industry chain. This includes the development, production and sales of all kinds of feedstuffs, seedlings and biopharmaceuticals, as well as the distribution of animal husbandry and food products.

Haid holds a leading position in the global feedstuffs industry. At present, about 10% of the group’s total revenue comes from overseas markets, such as Southeast Asian countries, South Asia, North Africa and South America. With more than 40 overseas offices, the group distributes its investment according to the scale and characteristics of the agricultural development in each country. Ding explained, saying: “In many Southeast Asian countries, agricultural products are important export commodities. As such, the size of their agriculture and livestock market is huge, offering opportunities for our group to set up production bases there.”

In view of the fact that the production and transportation cycles of feedstuffs are short, Haid found it necessary to build production lines locally to make products supplied to clients within a radius of several hundred km through the local sales networks. Ding said: “When we tapped into the Southeast Asian market about 10 years ago we acquired a local factory in Vietnam as early as 2011.”

Today, Haid has not only grown and built up its brand in Vietnam’s aqua feed market, but has also expanded into the livestock feedstuffs, aquatic seedlings and animal healthcare products markets. Ding said: “Riding on the experience accumulated in Vietnam, we moved into other Southeast Asian countries, setting up feedstuff production bases in Indonesia and Malaysia as well as establishing extensive local sales networks.”

Localisation Strategy

In its business expansion in ASEAN, Haid has inevitably come across challenges. First and foremost are the strict supervision and low administrative efficiency of local governments. Ding gave an example saying: “When the group invests in building production bases in the region we have to go through such procedures as land purchase, calls for tender for factory construction, application for environmental compliance and water and power supply, as well as daily operations. We have to make frequent communications with the relevant local government departments in order to ensure that the project can proceed smoothly.”

ASEAN countries in general exercise tight control over cross-border capital flow. For example, any capital flow under the trade account must be accompanied by a detailed record of the trade transaction, while any investment-related debit or credit entry under the capital account must be examined and approved by the central bank. Moreover, the difference between Southeast Asian countries and mainland China in terms of business environment and business practices, such as workplace culture and labour laws, has also posed challenges to the group.

However, Ding saw Haid’s investment and business operations in ASEAN as smooth on the whole. He said: “By adopting a prudent investment strategy, the group would, in the initial stage of each investment plan, conduct an in-depth study to gain an understanding of the opportunities, investment rules, laws and regulations, tax system and labour policies of the local market. We also pay attention to the land use of the site selected for building the production base.”

In addition, localisation is the cornerstone of Haid’s business strategy in overseas markets. The group plans and invests in production bases construction and, upon completion, implements localisation of production, sourcing, sales and operation. Ding said: “In particular, the employment of local staff as core members of the production and sales teams helps us enter the local market and respond to the demands of clients rapidly.”

On the basis of localised operations, the group devotes great efforts to combining its advantages and experiences, with headquarters responsible for co-ordinating R&D, sourcing and financial planning, in a bid to enhance its business competitiveness in the local market.

Hong Kong Services Support Overseas Expansion

Haid started business operations in Hong Kong more than 10 years ago. While the group used Hong Kong as a platform for making investment overseas in the early years, it has been relying more on Hong Kong as a corporate treasury centre in recent years. Ding said: “As Hong Kong is an open financial market with a full range of services and no foreign exchange control, it offers great advantages to the group as the base for managing and allocating funds to and from various places. Moreover, as capital flows between Hong Kong and the mainland are becoming increasingly frequent and Hong Kong offers a diversity of financial products such as cross-border capital pools, it can greatly facilitate the group’s capital flows between the two places.”

Starting in 2018, benefiting from the concessionary policies for corporate treasury centres introduced by the Hong Kong government, Haid has had its income tax reduced by half upon certification by the Monetary Authority as a qualified corporate treasury centre. Ding made particular reference to the exchange rate hedging products available in Hong Kong which help Haid guard against exchange rate fluctuations, and allowing the group to centralise foreign exchange risk management through Hong Kong.

With regard to operating funds for overseas business, Haid mainly raises funds from two channels: either borrowing in Hong Kong for projects in overseas market, or raise funds directly in the overseas market, depending on the foreign exchange risks and financing costs in the investment destination. Ding said: “Since the Hong Kong dollar is pegged to the US dollar and financing costs in Hong Kong are low, when Haid invests in countries where exchange rate is relatively stable or foreign exchange control is more relaxed, the total costs of obtaining US dollar loans in Hong Kong are lower than obtaining loans in those countries. At present, about 30% of our foreign financing takes place in Hong Kong. We expect that this share will rise further in the years to come.”

On the trading front, Hong Kong has extensive networks, a large pool of talent and rich business experience where sourcing, logistics and offshore trade management are concerned. Since the raw materials for producing feedstuffs, such as maize, soybeans and fish powder, mostly come from foreign countries, such as the US, Brazil and Peru, imports currently account for 30% of Haid’s raw materials. In view of this, the company established a global sourcing centre in Hong Kong some years ago to centralise the sourcing of raw materials from around the world in a move to strengthen its bargaining power. Ding said: “By combining our corporate treasury centre and trade centre, the group can use the many methods of financing available in Hong Kong, such as working capital loans and letters of credit, to meet the demand for fast cash flow in raw materials trade.”

Hong Kong’s Competitiveness

Looking to the future, Ding predicted that in the years to come Haid will rely more on Hong Kong as its corporate treasury centre and trade centre, especially on Hong Kong’s function as a financing platform. He hoped Hong Kong could forge closer business ties with Southeast Asia, such as signing comprehensive avoidance of double taxation agreements with more ASEAN countries as well as striving to join the Regional Comprehensive Economic Partnership (RCEP), so as to connect further with ASEAN in trade and financial activities which will in turn enhance its competitiveness.

Ding pointed out that Hong Kong stands to benefit immensely from policies in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA), saying: “We expect that mainland GBA cities will make further breakthroughs in the cross-border flow of professionals and funds. We’re hopeful that Hong Kong can capture the opportunities arising from the GBA, especially in foreign exchange and currency clearing systems, enhance its role and provide better facilitation so that Haid can continue to use the SAR to expand our business.”