GUANGZHOU/HONG KONG: When Poon Wing-kwong opened a snack shop in Guangdong's Hong Kong City in January, he arrived with high hopes for his new business in the provincial capital.

Prior to his move to Guangzhou, Poon had been selling candies, cut dried food and other types of snack in Hong Kong.

But three successive years of weak economic activities in the SAR convinced him that he might need a change.

He thought the opportunity had come when he read the news at the start of the year that Chinese in Hong Kong and Macao were allowed to open "individually owned stores" to provide retailing services in the Guangdong Province under CEPA, the Closer Economic Partnership Arrangement between the mainland and Hong Kong.

Poon applied to the Guangdong Industry and Commerce Administration (GICA) at once, and was given the necessary licence to open the LGS Snacks Shop.

In the ensuing year, over 1,200 people from Hong Kong and Macao followed Poon and opened stores across the province engaging in a whole range of retailing activities from boutiques and snack stores to gemstone shops.

According to latest figures provided by GICA, a total of 1,247 citizens from the SARs have opened stores in the province as of November 30, of whom 1,133 have come from Hong Kong and 114 from Macao. Their investments exceed 52 million yuan (US$6.2 million) in total.

Breakdown of the figures show that Hong Kong investment accounts for over 94 per cent of the sum, or 49.1 million yuan (US$5.9 million), while their counterparts from Macao make up the rest of 2.9 million yuan (US$350,000).

By the end of November, the investment per store averaged 41,770 yuan (US$5,050), slightly down from the average of 43,000 yuan (US$5,190) by September.

Every month during the period, about 100 individuals from Hong Kong and Macao were issued a licence to start business.

They spread to over 16 cities of Guangdong, with 80 per cent concentrated in Guangzhou, Dongguan and Shenzhen.

Their footsteps are also seen, amongst others, in Zhongshan, Zhuhai and Foshan.

An official with GICA told China Daily there was tremendous interest shown by people from Hong Kong and Macao in the first few months after the first phase of CEPA became effective.

The momentum, however, has slowed down lately at present.

"The numbers increased by more than 100 cases a month in the first few months. But the pace seems to have slowed down a little since April or May. The monthly increase has stabilized to about 100 or less," the official said.

Poon, the snacks store owner, said business was brisk in the first few months. But now he is fighting hard to keep his investment afloat.

"In the first several months, business was alright. But the situation has been deteriorating since then. I think the blow to us is the extremely high rent the shopping mall is charging us," Poon said.

He said that he was paying a monthly rent of 10,000 yuan (US$1,209) for the 10-square-metre shop, and admitted he was running at a deficit.

Brighter future

He has a staff of six and pays them 1,000 yuan a month each. However, to survive, he plans to cut their wages.

Poon is pinning his hopes on the Spring Festival.

"Traditionally, it is a busy season for us. So I will carry on and see if the situation will turn around then. If sales continue to be as weak as now, I may withdraw from this shopping mall," he said.

The management of the mall admitted business was not brisk.

Huang Zhihua, manager of the mall, said that in the first few months of Hong Kong City's opening, they received "numerous" telephone calls enquiring about leasing matters.

"But since December 1, we have received only eight such enquiries," Huang said.

In the first six months, all the shops were leased. But a few shops were seen vacant when China Daily toured the shopping centre.

Why is it becoming hard to do business now? Saleslady Gu Yuan at boutique shop LiLi at the shopping centre believes it is related to the Individual Travel Scheme that allows mainlanders to travel to Hong Kong and Macao easier.

"If the locals want to buy Hong Kong products, they just go straight to Hong Kong. It is so easy to go there now," Gu said.

According to Gu, LiLi was opened by a Hong Kong person a few months back. Most of the clothes are now sold under the brand of "Yucai," a Guangzhou brand. Its switch to mainland products from Hong Kong goods is a survival attempt after fewer customers are coming to the shopping centre for Hong Kong products.

Huang agreed with Gu. "Hong Kong City's biggest competitors are not other shopping centres in Guangzhou but in Hong Kong," he said, admitting that some tenants had left the mall because of bleak business.

There is another hurdle that the tenants have to overcome - counterfeit products.

Yvonne Wang, a shopper, said she was merely taking a brief walk at the shopping centre and was frank that she would unlikely shop at the mall because she could not differentiate between the original made in Hong Kong and the counterfeits.

Vivian Du, another shopper, said she would buy cosmetics at Hong Kong City as long as the label on the bottles was not written in Chinese.

With the introduction written in other languages, Du believes the products are more likely imported than made locally.

Local shop owners appear unconcerned by the arrival of competitors from Hong Kong and Macao.

At the Yinzuo Shopping Centre near Hong Kong City, businessman Guo said he did not feel threatened at all.

"Even if they do not come, there would be locals coming forward to compete with me," Guo said.

Academics believe people planning to open small businesses in the mainland should aim at markets yet to be well developed with high-end services and products.

In October 2004, the central government and the SAR signed a supplementary agreement to further liberalize the domestic market to the SARs.

Huge potential

In respect of individually owned stores, as from January 2005, Hong Kong people will also be allowed to open such stores outside Guangdong. The variety of business they may participate in is also enlarged to food and beverage services, hair dressing, beauty treatment and health care services, bathing services and repair services of home electrical appliances and other goods for daily use.

Tuan Chyau, chairman of the Office of China Research and Development at the Chinese University of Hong Kong, foresees that a high growth in consumption will continue to be an important trend in the mainland's economic development.

"Domestic consumption will be a robust driving force for sustained economic growth as affluent people in southern urban cities are bound to seek quality goods and services to improve their living standard," Tuan said.

"For the urban population, housing and automobiles were customary in the 1990s.

Now, the demand is shifting to daily consumer goods such as clothes, jewelry, cosmetics and home decoration products as well as personal care services like hair-dressing and beauty treatment."

In spite of the slack trade in recent months, Tuan is optimistic that more individuals from Hong Kong will be heading for the mainland to make use of the CEPA privileges to open small businesses.

"With their instinct for quality services and global trends, Hong Kong people can provide trendy consumer goods and high-end personal care services to meet the culture and needs of mainland customers," Tuan said.

To start with, those interested in making the move may consider setting their foot outside Guangdong after the supplementary agreement becomes effective in 2005, he said.

Internally in the SAR, he said the CEPA arrangement should help ease the pain of Hong Kong's economic restructuring.

"For people who are less-educated and middle-aged, they have more difficulty in securing a job in Hong Kong. The arrangement provides them with an opportunity to start up their own businesses in the mainland as an alternative way to earn a living," Tuan said.

Eddy Li, president of the Hong Kong Economic and Trade Association, said there were many hurdles for interested individuals to overcome despite CEPA.

"First, the procedure for applying for a business registration certificate is complicated. There is also a tax requirement that one must understand how to report on," Li said.

He cautioned that people interested in setting up small businesses in the mainland must locate their stores carefully. "If you pick a store with a neighbour selling counterfeits, people will take it you are selling counterfeit too, even if you are selling the genuine article," he said.

According to GICA, seminars and forums are held regularly for Hong Kong and Macao residents to obtain related information and to get a better understanding of the policies concerned.

(China Daily 12/25/2004 page3)