"Hong Kong's Role as Asia's Premier Logistics Hub and Gateway to China"
Speech by Mr. Stephen IP, Secretary for Economic Development and Labour,
in Milan, Italy

Distinguished guests, ladies and gentleman,

Buongiorno [Good day]. Thank you for coming today and for your interest in Hong Kong. I am delighted to be here in Milan, because our two cities have much in common. And it's not just that we are both major centres of business, finance, transport and media. We also love football, and it's not uncommon to see a few of our young people sporting Christian Vieri jerseys on the streets of Hong Kong.

2.　I am pleased to be accompanying industry leaders serving on the Hong Kong Logistics Development Council to promote our unique advantages and unrivalled strengths as Asia's premier logistics hub and the gateway to China. We have come all the way to your doorstep for two reasons. First, we look upon Italy as an important business partner for Hong Kong. Second, we're here to help consignees choose the right port in Asia.

3.　Constrained by physical size and population, Hong Kong is a rather small market in its own right. But, leveraging on our prime location and world-class transport infrastructure, we have become a leading international logistics hub for air and sea cargo.

4.　Many people find it amazing that an economy of Hong Kong's size handled 22 million TEUs of containers by sea and 3.1 million tonnes of cargo by air last year. In 2004, Hong Kong handled one-fifth of the trade between Italy and the Mainland of China, valued at 3.4 billion euros [HK$32.7 billion]. Bilateral trade between Italy and Hong Kong increased by 20% last year, and this would not have been possible without our efficient, reliable and value-for-money logistics services.

5.　The Hong Kong economy is overwhelmingly externally-oriented and service-driven. In terms of services, we know that we cannot compete on cost alone. Our key value proposition to logistics clients is service quality - reliable just-in-time delivery with a wide range of choices in transportation mode and service schedule, and a transparent and friendly regulatory environment. Hong Kong offers extensive experience in international trade, deep-rooted respect for the rule of law, minimal red tape, and zero tolerance for corruption. We espouse free trade, support the free flow of information and foreign exchange, and charge low tax rates under a simple and transparent tax regime. We respect and protect intellectual property rights. Under the principle of "One Country, Two Systems", the economic success of Hong Kong is underpinned by our strong institutions of a clean government and independent judiciary, as well as our unique constitutional status as part of China and yet a separate customs territory with a high degree of autonomy. These are the advantages that set Hong Kong apart from our competition in the region.

6.　Globalisation has opened up new opportunities and created new demands in the procurement, transport and distribution of raw materials and manufactured goods. Experienced logistics managers appreciate that predictability is at least as important as cost in the choice of service providers. They know the hassles that a delay will cause: missed berthing slots in subsequent ports, readjusted schedules, and uncertain feeder and train connections. And how dearly it will cost, especially if high-value, time-critical merchandise is at stake: penalties, extra warehousing costs, and worst of all, missed seasonality and tarnished credibility. Increasingly, speed, efficiency, reliability and transparency in logistics flow have become the driver of profit margins for businesses all over the world. This, ladies and gentlemen, plays to the established strengths of Hong Kong's services and experience.

7.　Within five hours' flying time of half of the world's population, Hong Kong is at the heart of Asia. Taking advantage of our location, Hong Kong has thrived on interaction with the global village and as the premier international gateway for trade with China and investment in the Mainland.

8.　But how does Hong Kong compete with the other fast-developing ports in southern China? Consider this - within an hour's flight of Hong Kong are about 270 million people, more than four times the population of Italy. And in the past five years, exports from adjacent Guangdong Province have doubled. So, in terms of sheer market size and export growth, there is plenty of business to go around for us in southern China alone - leaving aside for a moment the remaining one billion people in the rest of China.

9.　Our world-class port and award-winning airport, and the multi-modal links they provide, have made Hong Kong the world's busiest container port for 12 of the past 13 years, and the world's busiest international air cargo hub since 1996. Our extensive service coverage offers ample choices: At the Hong Kong container port, 80 international lines operate 400 shipping calls per week to over 500 destinations globally, and the commercially-operated terminals boast a record of 50 gate movements per crane per hour. On the aviation side, 70 airlines run 4,600 scheduled flights weekly to 140 destinations worldwide, including 40 in Mainland China. SuperTerminal 1, the world's largest stand-alone air cargo handling facility, with an investment of over 820 million euros [US$1 billion], offers a full chain of cargo handling services as well as documentation processing, ramp handling and pre-arrival clearance of import cargo.

10.　To cope with the volume of cargo, customs service runs around the clock under Hong Kong's own clear and predictable customs rules. Coupled with highly efficient port and airport facilities run by commercial operators, Hong Kong caters to the most stringent shipment schedules. "Hot" containers can be dispatched from Dongguan, about 120 kilometres away in southern China, and shipped out of Hong Kong within seven hours! This explains DHL's location of its Express Logistics Centre and Central Asia Hub in Hong Kong, with an 82 million euro [US$100 million] investment under a 15-year franchise. Cargo volume creates a critical mass, which in turn enables Hong Kong to develop one-stop integrated logistics service for just-in-time distribution in a wide range of areas. We don't just move boxes along - we consolidate, distribute and manage inventory for large chain stores across Europe and America.

11.　Faced with fierce competition in the global market, we can never rest on our laurels. We will continue to invest in both the hardware and the software necessary to boost our logistics capabilities.

12.　We are making significant investments to enhance Hong Kong's physical connectivity with Mainland China, our logistics hinterland. We are putting in place world-class infrastructure and a facilitating regulatory regime to make the cross-boundary flow of goods faster and cheaper. The completion of the new Hong Kong-Shenzhen Western Corridor in 2006 will more than triple the capacity for cross-boundary traffic. Preparatory work for the construction of the Hong Kong-Zhuhai-Macao Bridge is proceeding as a matter of priority. The bridge will greatly expand Hong Kong's cargo catchment area into the western part of the Pearl River Delta and beyond. Our airport is charting its mediumterm development up to 2020. When fully developed, it will be able to handle 87 million passengers and 9 million tonnes of cargo per year. We are also conducting studies to determine the timing and location of new port facilities.

13.　In modern logistics, information connectivity is arguably even more important than physical connectivity, especially if we wish to climb further up the value chain. That's why we will launch the Digital Trade and Transportation Network System, or DTTN, by the end of this year. The DTTN will provide a neutral and secure interface for logistics players in the supply chain to exchange information and data. It will lower the cost of information flow, increase reliability, and provide interconnectivity to stakeholders all along the supply chain - both in Hong Kong and beyond. It will strengthen our role as the prime logistics information conduit, and enhance the overall competitiveness of our logistics sector. With this cyber-infrastructure, Hong Kong can reinforce its role as Asia's virtual logistics hub.

14.　Another key element in staying competitive is developing new IT solutions. The Government is working with the industry and academic institutions to promote research and development of radio frequency identification (RFID) technology and its application in logistics operations. Our objective is to make Hong Kong the trend-setter in Asia, rather than a follower, in the application of RFID in logistics operations.

15.　In addition to our intrinsic logistics strengths, we are also the premier gateway to China. In 2004, 28% of China's international trade by value was routed through Hong Kong. In recognition of Hong Kong's status as a separate customs territory, and a WTO member in our own right, in January 2004, a landmark free-trade pact with the Mainland of China came into force. Known as CEPA, it gives Hong Kong service providers advance access to the Mainland market in over 20 services sectors including logistics, transport, freight forwarding and storage/warehousing. Since China has not made any WTO commitments in logistics and maritime transport services, Hong Kong companies in these sectors enjoy unique advantages over their foreign counterparts. This seals Hong Kong's economic partnership with Mainland China and, more importantly, entrenches our role as the premier gateway for international investors in China.

16.　"What does this offer to Italian businesses?" you may ask. The answer is: CEPA does not apply the "nationality" test. Any service provider qualifies if it meets the criterion of "year of substantive operation in Hong Kong", irrespective of where its capital comes from. This makes Hong Kong your natural partner for establishing a stronger business presence in China than was ever possible before.

17.　CEPA also raises the curtain for an expanded role for Hong Kong in global trade. China's accession to the WTO has admittedly drawn a close to the era when Hong Kong was the world's primary, if not the sole, agent for China trade. But our fundamental attractions to international investors who wish to penetrate the China market remain unrivalled by any other Chinese city. These are the advantages I mentioned earlier: our international trade experience, the rule of law, minimal red tape, zero tolerance for corruption, the free flow of information and foreign exchange, and low taxes. And we put them to good use for the promotion of global trade with China.

18.　Ladies and gentlemen, as Asia's leading logistics hub and gateway to China, Hong Kong promises speedy, reliable and value-for-money services. We urge you to come and unlock the unlimited potential.

19.　Tante grazie [Many thanks].

Economic Development Branch
Economic Development and Labour Bureau
September 2005