American firms have long looked to Hong Kong to hedge their risks in China, often using holding companies and favorable tax laws.
But an addition to the city’s financial repertoire in the past few years has made it an even more appealing gateway to (or buffer from) the mainland.
In 2010, Beijing relaxed restrictions on foreign firms issuing bonds denominated in China’s currency, the yuan or renminbi, on Hong Kong markets.
These so-called “dim sum” bonds can lower the cost of borrowing for operations on the mainland by eliminating exchange fees and allowing companies to hedge against the yuan’s appreciation versus the dollar, which has been steady this year.
American multinationals like Caterpillar Inc., Yum! Brands Inc. (the franchiser of KFC and Pizza Hut) and McDonald’s Corp. have raised millions with this strategy, which also makes sense for Georgia firms producing goods in China, said Donald Tong, commissioner of the Hong Kong Economic and Trade Office in Washington.
Mr. Tong, Hong Kong’s top diplomat in the U.S., visited Atlanta to promote the city’s growing trade with the country as a whole and specifically with Georgia. His office hosted a Chinese New Year reception at the Carter Center on Feb. 8.
In an interview before the event, he highlighted the Hong Kong’s role as an “offshore” hub for many China-focused transactions.
As a Chinese special administrative region, Hong Kong has its own currency, the Hong Kong dollar, and operates a separate customs district. The “one country, two systems” policy has been in place since the British handed the island territory over to China in 1997.
This has made Hong Kong an important “firewall” for foreign companies hedging currency risk in China, Mr. Tong said.
But more recently, the city has been on the leading edge of China’s closely controlled efforts to increase the yuan’s international exposure.
The Communist Party of China’s 12th five-year plan, instituted in 2011, gave Hong Kong the “clear, distinct role” as China’s offshore renminbi business center, Mr. Tong said.
The city has also become the leading location for settling trade deals in renminbi, a service that started in Hong Kong but is now offered in mainland cities like Shanghai, Hong Kong’s “on-shore” counterpart, Mr. Tong said.
For American firms doing business in China, paying from a renminbi bank account can lead to better purchasing terms and can help win contracts over competing companies, since it lowers the buyer’s overall costs. It also eliminates the cost of exchanging dollars on each order and offers a hedge against yuan appreciation.
As its regional importance has grown, Hong Kong has also seen its appeal as an international financial center rise, especially with the slowdown in the U.S. and Europe and growth in initial public offerings, Mr. Tong said.
“Hong Kong has for three years in a row been the No. 1 IPO center in the world, and we continue to have lots of mainland companies list in Hong Kong, but now it’s no longer just Hong Kong companies or mainland companies,” he said.
Mr. Tong cited American firms like handbag maker Coach Inc. and AIA, the Asian life insurance arm of AIG, which raised $17.9 billion to become Hong Kong’s biggest IPO. Companies have flocked to Hong Kong because of its liquidity during tough times for the U.S. and European markets.
“To some extent the liquidity crunch out in the global economy, raising money is no longer as easy,” he said.
Financial services was only one component fueling Hong Kong’s 5 percent growth rate last year. Trade, another factor, was the one driving Mr. Tong’s Atlanta visit.
U.S. exports to Hong Kong in 2011 increased by 37 percent to $36.5 billion, up from $26.57 billion in 2010. On its own, Georgia exported $923 million in goods to Hong Kong, making it the state’s ninth largest export destination.
Hong Kong International Airport surpassed Memphis International Airport to become the world’s largest air cargo hub in 2011, though volumes slipped from 4.1 million tons the previous year to 3.9 million tons in 2011.
Airport Authority Hong Kong is investing in space for more planes and a new passenger concourse, while the private sector is leading efforts to build a new cargo facility, Mr. Tong said.
“Upon completion of all these facilities in the near future, the handling capacity of HKIA will be increased to 6 million tons of air cargo and 70 million passengers a year,” he said.
Hartsfield-Jackson Atlanta International Airport this spring will open a new $1.4 billion international passenger terminal. Mayor Kasim Reed has also championed air cargo, which he sees as key to creating jobs throughout the city.
A frequent visitor to the airport, especially when new cargo flights touch down, Mr. Reed has called for Atlanta to become the logistics hub for the Western Hemisphere, a distinction Hong Kong arguably has achieved in the East.
Mr. Reed and Mr. Tong discussed a variety of initiatives during a meeting on Feb. 8.
“We hope Mayor Reed and the City Council will find time to visit Hong Kong in the future so as to visit our airport and other facilities, and explore opportunities to reinforce ties between the two places,” Mr. Tong told GlobalAtlanta.
Mr. Reed will be in the neighborhood in late March, when he visits China for the first time on a business delegation. The city of Guangzhou – just two hours away from Hong Kong by train – is one of his scheduled stops.
Hong Kong is one of five Chinese cities to be visited on a separate trip led by the Gwinnett Chamber of Commerce in May.
To contact the Hong Kong Economic and Trade Office, visit http://www.hketowashington.gov.hk/dc/index.htm.