Mainland firms snap up HK assets

In the banking sector, mainland business conglomerate Yuexiu Property Co Ltd was reported as one of the bidders for the Hong Kong-based Chong Hing Bank.

The mainland companies are seizing the opportunities to "go out" since the financial crisis of 2008. Externally, developed and developing economies have a huge demand for overseas capital, making overseas enterprises more receptive to Chinese acquisitions. Internally, the need to acquire markets, resources, technologies and brands as well as to slash costs require Chinese enterprises to "go out" on a larger scale.

However, the overseas expansion trajectory is never easy. External challenges stem from rising overseas investment protectionism and increasing global investment market risks. Internal challenges emerge from mainland enterprises' scarcity of international management experience, inadequate assessment of the global investment environment, and a lack of international talent.

Due to the numerous obstacles the mainland faces when expanding overseas, mainland companies may now find Hong Kong to be an attractive springboard.

According to China CITIC Bank International Ltd, Hong Kong plays the irreplaceable role of providing a bridge for "going out" Chinese firms. This is because Hong Kong practices a high degree of openness and freedom in its investment policies, and has low capital controls, low taxes and a wealth of professional-services talent.

"The mainland enterprises should further leverage off this bridging role of Hong Kong for their large-scale ‘going-out'," China CITIC Bank International Chief Economist Liao Qun said.

"Meanwhile, Hong Kong should enhance its role as the bridge, steer clear of negative elements that are unfavorable to the city's economic development, and become more open, free and efficient," Liao added.

Daniel Poon, the Hong Kong Trade Development Council's principal economist, also was optimistic about the benefit of Hong Kong to mainland businesses. "With elegant historical juxtaposition, Hong Kong has moved from being solely a gateway for foreign investment in China to also being a springboard for China's investment in the rest of the world," he said.

Many foreign investment enterprises are still large State-owned enterprises from the mainland, but the number of private enterprises is steadily increasing.

The Hong Kong government said the mainland was the most important source of direct investment in Hong Kong. The majority of the stock of investment was related to service industries, including investment and holding, real estate, professional and business services; banking; and import/export, wholesale and retail trades.

The HKTDC figure shows that the mainland's cumulative investment in Hong Kong amounted to $261.5 billion at the end of 2011, accounting for 61.6 percent of the mainland's total outward FDI.

Because of the international business environment of Hong Kong, the city is a highly attractive market for foreign direct investment. Hong Kong's global FDI inflows ranked third in 2012 ($75 billion), after the United States ($167.6 billion) and the Chinese mainland ($121.1 billion), according to the UNCTAD World Investment Report 2013.

The mainland is poised for further overseas business expansion in the future as the country's enterprises still have a huge appetite for overseas technology, management skills and brand acquisitions.

According to China CITIC Bank International, the mainland's outbound FDI will have a compound annual growth rate of over 20 percent in the next five years, subsequently reaching more than $200 billion in 2017.