Ventures Dialogue

While Canadian athletes were winning medals at the Beijing Olympics, the Norman Hardie Winery in Prince Edward County also won gold for Canada at the Hong Kong International Wine Fair in August. With more than 240 exhibitors from 25 countries, the winery won the “Most Appealing Wine Label for Mainland Market” medal in the white wine group.

Norman Hardie is typical of many wine entrepreneurs in Ontario as he has followed what his passion and made it his life’s work. He started his journey working as a sommelier and restaurant manager for the Four Seasons Hotel chain before breaking out on his own. “On a clay limestone hill in Prince Edward County, my passion for fine wine is put to the ultimate test,” writes Hardie. His winery is an example of how small businesses can make a big splash abroad by entering competitions and attending conferences — in fact Hardie traveled with other wineries from Ontario and B.C to successfully promote their products to Asian buyers.

This is an important win for small to medium sized Ontario and Canadian wineries as Hong Kong is an important wine-trading centre for those looking to break into the Asian and Chinese mainland market. “The removal of the wine duty is our leading advantage, while our proximity to the booming Chinese mainland market, world-class infrastructure and logistics services are also key success factors,” said Hong Kong Trade Development Council (HKTDC) Assistant Executive Director Raymond Yip.

A survey of fair participants noted nearly 90% of those interviewed either sourced new products or found new supplies while 80% said they found new customers, promoted their company or brand image and better understood the market potential in Asia and the Chinese mainland. Full survey results here (LINK: http://202.64.102.92/hktdc/download.php?fid=_phpmX7yxu)

RELATED LINKS:

Hong Kong Interntional Wine Fair
http://hkwinefair.hktdc.com/

Norman Hardie Winery
http://www.normanhardie.com

Direct links to whatever relevant HK/China wine sites are available

Other related stories:
http://gremolata.com/normhardie.htm

Over 120 delegates from 61 Canadian life science companies arrived in Hong Kong yesterday to take part in the 4th annual Canadian Life Sciences Mission to Hong Kong. This year’s mission organizers included the Canadian Consulate General in Hong Kong, the Hong Kong Trade Development Council.

The five top reasons life science companies had for joining this year’s mission were:

1. To learn more about the opportunities in the Greater China marketplace for Canadian life science companies’ products and services. China is one of the top 5 pharmaceutical markets in the world. The current annual per capita consumption of western drugs is $14 versus $52-65 in most developed countries and $587 in Canada. This rapidly changing market for medical products is growing exponentially especially in key areas such as seniors because China’s population is aging faster than any other country in the world.  Healthcare and medical treatment is also relatively expensive, so high quality western products are highly valued as a preventative treatment strategy. Dietary supplements or “natural health products” as they are called in Canada are the fastest growing segment in OTC products in China, with the market expected to reach $18 billion by 2010.
    
2. To find business partners interested in licensing their technologies or distributing the Canadian companies’ products in Asia. What better place to find potential partners than by attending some of the world’s largest trade shows in Asia? The International Chinese Medicine Conference and Exhibition, the new Wine and Beverage Expo, the Hong Kong Food Expo and the Medical and Healthcare Fair will each attract thousands of exhibitors this week in Hong Kong. Many leading Canadian firms including Purity Life Health Products of Acton, Ontario are already enjoying excellent success in penetrating the Chinese and other Asian markets using the lessons learned and the connections made while participating in last year’s Canadian Life Sciences mission to Hong Kong.
    
3. To investigate international research opportunities, facilities and potential partners for future joint R&D projects. In April 2007, the Canadian and Chinese governments announced a new joint science and technology grant program. Several bilateral international meetings established priority research areas such as life sciences. Grants with specific criteria were opened to applications last September. Canada and China have each invested $350 million dollars into the program and the first $22 million in research grants, covering 9 projects, were announced in May. Complete details on this program are available atwww.istpcanada.ca.Canada’s new natural health product regulations combined with our reputation for excellent agricultural production methods and world-class research in the medical uses of herbs are making Canadian firms and institutions extremely attractive research partners and a key reason many leading life science groups are sponsors of this event.
    
4. To learn how to protect Canadian intellectual property by entering the Greater China market through Hong Kong. China’s research and development spending has grown at over 17% annually during the past 12 years. The Chinese biotech market, second only to the Americans’ in size, is also increasing 30% annually and is expected to reach $71 billion by 2010. It is one of six key industrial technologies targeted by the Chinese government to fuel growth in the Chinese economy. By the end of 2007 over 1160 R&D centers had also been established by multinational corporations in China. While China’s entry into the WTO and the enormous increase in R&D inside China has led to many positive changes in the Chinese government’s attitude towards protecting IP and encouraging innovation, Hong Kong continues to have distinct advantages for companies looking to mitigate risk. Its use of common law (similar to Canada) means that Hong Kong-based partner firms of Canadian companies have the right to have their court cases heard in Hong Kong and the decisions enforced inside mainland China. 
    
5. To locate low cost sources of low cost ingredients, semi- finished and finished goods that can be used to create new products for North America, new brands or specific products for Asia and licensed or co-branded products for both places. When China opened to international trade in the early 1980’s there were very few factories. Today many factories contain state of the art equipment, have world class GMP and QA certifications, and for the next few years, will also continue to have low cost labour costs. A series of new research studies identifying some of these opportunities have been posted at www.strategis.gc.ca/logistics.

If you are interested in attending next year’s Canadian Life Sciences trade mission, contact the Hong Kong Trade Development Council’s Office in Toronto or one of the other sponsoring organizations.

It was imperative in this era of globalisation for Hong Kong to reach out to other countries  to collaborate in education and in nurturing of talent, according to the Secretary for Education, Mr Michael Suen.

Speaking earlier this month at a breakfast seminar, entitled “Nurturing Talent in a Globalised world – Hong Kong’s Game Plan and Opportunities for Canada”, jointly organised by the Asian Institute of the University of Toronto and the Hong Kong-Canada Business Association in Toronto, Mr Suen said Hong Kong and Canada already enjoy sound educational ties, but as an important international partner, Canada had a significant part to play and “we can do even better”. 

Hong Kong’s education institutions have student exchange arrangements with more than 30 of their counterparts in Canada. “Of the 2,900 incoming exchange students this academic year, 231 are from Canada, while 289 Hong Kong students went to Canada,” Mr Suen said, while calling for more exchanges.

He said an exciting area for international collaboration was research and development. “There are more than 200 research projects conducted between institutions in Canada and Hong Kong’s high education sector covering areas such as biological sciences, physical sciences, engineering, IT and computer science and technology.”

Education takes up the largest share of Hong Kong government’s spending. The Special Administrative Region has set aside in this year’s budget about $18 billion (CAD$2.3 billion) for a research endowment fund to support research and development activities at its tertiary institutions. “I believe this will open up new areas for co-operation in research between Hong Kong and Canada,” he said.

Mr Suen said Hong Kong was so reliant on strong education because “one of our biggest challenges will be coping with the combination of an ageing population and low birth rate, resulting in a shrinking workforce.” And, “in a small externally-oriented economy such as ours, it is the vitality, entrepreneurship and hard work of our people that keeps us competitive in an increasingly competitive word.”

He highlighted the Government’s various measures to help raise the quality of its human capital in a globalised world, and stressed that opportunities were opening up in Hong Kong for overseas students, including those from Canada.

“We are opening the door wider to overseas talent including students, business people, investors and those with special talents such as musicians, sports people and creative talent,” Mr Suen said.

The Secretary for Education cited programmes such as the “Quality Migrant Admission Scheme (QMAS)”, “Entry for Employment as Professionals Scheme”, “Admission Scheme for Mainland Talents and Professionals”, and “Capital Investment Entrant Scheme”, as well as the newly-introduced “Immigration Arrangements for Non-local Graduates” scheme, as examples.

The Vancouver-born former NHL (National Hockey League) star Barry Beck is one of the 500 people who have been admitted to Hong Kong under the QMAS since its launch in June, 2006.  Other high-profile names include world-renowned pianists Lang Lang and Li Yundi, and actress Zhang Ziyi.

The “Entry for Employment as Professional Scheme” has also brought in more than 210,000 high quality people from different fields over the past decade. And, under the “Capital Investment Entrant Scheme”, with a minimum investment of about CAD$830,000, overseas citizens can settle in Hong Kong.

The seminar was attended by about 80 representatives from the academic, education, business and political sectors in Toronto.

Discussions are underway about developing a special cooperative region between Hong Kong, Guangdong and Macau thus creating a Hong Kong-Guangdong-Macau Special Cooperative Region for economic integration.

The Guangdong Foreign Trade and Economic Cooperation Department, Guangdong Development Research Centre, and Guangdong Academy of Social Sciences, among others, have come together to study the integration of the three areas.  Content, feasibility, advantages and disadvantages, impact on the state and neighboring areas, possible problems and formulation of counteracting strategies, and implementation of procedures are all being studied.  The Pearl River Delta, an area within this region has been struggling in recent years and officials are eager as they hope this will economic growth by raising its comparative advantage over other regions.

Advisors have pointed out that under the Closer Economic Partnership Agreement (CEPA), one of the best ways to encourage cooperation is by addressing specific issues.  For instance, allowing the free trading of stocks, securities and futures with this region has been suggested.

Shenzhen, a city within Guangdong, became a Special Economic Zone (SEZ) in 1979 and it has since developed into the second busiest port city in China, and ranking among the top in GDP per capita.  Shenzhen also has its own stock exchange, the ninth tallest building in the world (Shun Hing Square), and six land crossings to Hong Kong.  SEZs have special tax incentives for foreign trade and investment.   If anything were to happen, a trial period would be first step as the political, economic, culture and laws of Guangdong, Hong Kong and Macau are vastly different.  Eighty per cent of Hong Kong’s economy is dominated by the service sector with finance, transportation and tourism.  Macau is known for its casinos, but manufacturing, financial services and real estate also plays a key role in its economy.  Also noted is that while Hong Kong traditionally uses the British system, Macau follows Portuguese rule of law.

The China-Hong Kong Closer Economic Partnership Arrangement (CEPA) was first introduced in January 2004 to increase the level of economic trade and cooperation between Hong Kong Special Administrative Region (SAR) and the Chinese mainland. 

Essentially, CEPA is a free trade agreement (under World Trade Organization (WTO) rules) which allows easier access to China’s market for Hong Kong made products and Hong Kong based service companies.  CEPA is China’s first bilateral trade agreement.  

Since 2004, there have been four supplements, with the most recent implemented in January 2008 (CEPA V). 

CEPA covers three broad categories: 

1. Trade in Goods - All classified “Made in Hong Kong” goods that meet CEPA rules of origin (ROO) from approved local manufacturers are imported, tariff free, into mainland China.

There are 1,502 tariff codes outlining the ROO criteria for classification as a Hong Kong made product.  Foreign products must be substantially transformed to meet CEPA standards. The major criteria are:

• Value-Added Content- This applies to about 11% of the 1,502 tariff codes. This origin rule requires the total value of labour, product development, component parts and raw materials to more than or equal to 30% of the free-on-board value of the goods.
• Manufacturing or Processing Operations- This applies to about 72% of the 1,502 tariff codes. This origin rule requires the principal manufacturing or processing operations which confer the essential characteristics to the final product are carried out in Hong Kong.
• Change in Tariff Heading- This applies to about 11% of the 1,502 tariff codes. This origin rule requires the processing and manufacturing of non-originating materials to be carried out in Hong Kong and resulting in a product of a different four-digit tariff heading under the “Product Description and Harmonized System Codes.” manufacturing or processing operations, and change in tariff heading.

Each shipment of goods exported to mainland China must be have a Certificate of Hong Kong Origin- CEPA (CO(CEPA)). Applicants must comply with 11 criteria to be issued a CO(CEPA) by the Trade and Industry Department (TID) or one of the five Government Approved Certification Organizations:

• The Hong Kong General Chamber of Commerce
• Federation of Hong Kong Industries
• The Chinese Manufacturers’ Association of Hong Kong
• The Chinese General Chamber of Commerce
• The Indian Chamber of Commerce, Hong Kong

Before applying for CO(CEPA), the Hong Kong manufacturer must apply for a Factory Registration (FR) with the TID. A FR validates that its factory has the capabilities to produce the goods for export.

2. Trade in services - Hong Kong service suppliers are given preferential treatment in entering into mainland China in many service sectors. Professional bodies of Hong Kong and the regulatory authorities in China have also signed a number of agreements or arrangements on the mutual recognition of professional qualification.

There are 28 service sectors in which geographical, financial, and ownership restraints are either reduced or removed. Any company, foreign or domestic, can apply as a Hong Kong company and take advantage of CEPA, provided that it meets the following criteria:

• Incorporated in Hong Kong
• Has operated for three to five years (depending on the sector)
• Is liable to pay Hong Kong profits tax

[A company (domestic or foreign/ Hong Kong or foreign) must pay profits tax if it carries on a trade, profession or business in Hong Kong and has profits arising in or derived from Hong Kong.] 

• Employs 50% of its staff locally

3. Trade and investment facilitation - Both China and Hong Kong have agreed to enhance cooperation in eight core trade and investment areas: 

• Customs Clearance Facilitation
• Quarantine and Inspection of Commodities, Quality Assurance and Food Safety
• Cooperation of Small and Medium-Sized Enterprises
• Cooperation in Chinese Medicine and Medical Products
• Electronic Commerce
• Trade and Investment Promotion
• Transparency in Laws and Regulations
• Protection of Intellectual Property

For more information about CEPA:

Trade and Industry Department of Hong Kong (SAR) http://www.tid.gov.hk/english/cepa/index.html 

Hong Kong Economic & Trade Office http://www.hketo.ca/invest/cepa.html

Nowadays when we look at China, we see a fast growing economy and market.

However, the numerous Provinces, Autonomous Regions, Municipalities and Special Administration Regions in China, with different market characteristics, represent often very different markets within the same country with different languages, cultures, business practices, and rules and regulations. This could present a challenge to prospective companies especially those which have no China trade experience.

Canadian companies, with limited resources, have to be rigorously strategic when devising their China business plans – not spreading their resources too thinly or wasting them. For starters, it may make sense for them to identify the best possible entry point into this huge and diverse market.

This best possible entry point “in China” should be able to provide the Canadian company with the right business partners, international legal system such as Common Law, and Intellectual Property (IP) security. It should also enable the Canadian company to make money and get paid.

This best possible entry point in China for Canadian companies is Hong Kong.

Hong Kong is THE international city in China. Hong Kong offers Canadian companies many advantages including freedom of movement of people, goods, capital and information. Hong Kong understands the West and the East, and many Hong Kong companies have extensive China trade experience and connections to share with potential Canadian partners and associates.

If a Canadian company chooses Hong Kong as its bridgehead for the Mainland China market or regional target markets, it will probably need to:

1. Obtain market intelligence
2. Find a business partner
3. Go to the market

To proceed, the Canadian company can leverage on the services and initiatives provided by the Hong Kong Trade Development Council (HKTDC), Hong Kong’s statutory trade promotion agency. For more information, interested parties can contact Constance Leung, Business Development Officer, HKTDC Toronto Office, Tel: (416) 366-3594, email: constance.h.leung@tdc.org.hk or visit the portal site of HKTDC:http://www.tdctrade.com/

China promises "a shopping spree of historic proportions," Janet De Silva

China’s growing middle class is expected to transform the global consumer marketplace as we know it, according to the CEO of a Hong Kong based company called retailChina.

Speaking to The Hong Kong Canada Business Association, Janet De Silva, explained that by 2009, the number of middle-income consumer class households in China is expected to triple to 105 million and to reach 520 million by 2025.

In China, these households are much more youthful than other developed countries. According to De Silva, many of China’s emerging middle class consumers are young professionals between the ages of 25 and 40, with significant, discretionary spending power. More importantly to Canadians, they’re first generation consumers with no brand loyalty, and they value goods produced outside of China.

De Silva, a Canadian who was previously the Chairman and CEO of Sun Life Financial (Hong Kong) Limited, says China is unlike any other market. In order to successfully sell to China, companies must understand the geographic diversity and differences in consumer tastes and attitudes.

De Silva describes dramatic differences between consumer preferences in China’s largest four or Tier 1 cities, and the 11 cities labeled as Tier 2. In Beijing, Shanghai, Guangzhou and Shenzhen, consumers are looking for items that demonstrate their rising status; whereas in tier 2 cities like Nanjing and Xi’an, consumers focus more so on safety and hygiene. Successful companies adapt their marketing strategies accordingly.

Of course price point is vital. Retailers must be able to drive down costs in order to succeed in the market. And for retailers, the biggest barrier, according to De Silva is getting experienced people and keeping them.

Working directly with the property developers of international malls in China (200 new malls in the next 3-5 years), retailChina is looking to acquire international brands to market to this burgeoning middle class. Already the company is marketing Fruits & Passion in 12 stores in China and plans to grow that network to 80 stores by 2010.

China promises “a shopping spree of historic proportions,” says De Silva, with all international brands equal in the eyes of the Chinese consumers. While “Made in Canada” has no particular brand, Canadian retailers have an equally tremendous opportunity to sell to what will someday be, the world’s largest middle class consumer market.