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Feature Story: US firms see great prospects in CEPA
( 2003-08-26 15:04) (China Daily HK Edition)

Competition is always good, but co-operation is even better. When coastal boom towns compete, they create a more favourable environment for investment. But when CEPA (Closer Economic Partnership Arrangement) removes trade barriers between Hong Kong and the rest of China, everyone, including US investors in China, will benefit. That's the gospel according to Harley Seyedin, president of the American Chamber of Commerce in Guangdong.

Seyedin is also CEO of First Washington Group. With 13 years of experience doing business in South China, Seyedin has guided First Washington to lead the way in opening up several business fields in China and attaining such impressive feats as establishing the first Western majority-owned power plant, the first Western-invested toll road and the first US-accredited joint university.

"A healthy Hong Kong and a healthy Pearl River Delta (PRD) go hand in hand. One cannot go forward without the other," said Seyedin, offering his interpretation of CEPA in an interview with China Daily. The majority of US companies located in the PRD use services in Hong Kong in support of their investment on the Chinese mainland, according to Seyedin. "CEPA's impact on US investors here will be positive. Anytime you remove trade barriers, it helps everybody because trade is a two-way street."

Drawing a parallel with NAFTA, which he was involved in drafting, Seyedin illustrated how a trade agreement such as CEPA might benefit more than the immediate parties concerned. "Everybody thought NAFTA was going to benefit only the US, Canada and Mexico. But countries like Argentina and Brazil can make products in Mexico to get tariff-free access to the US market. So NAFTA turns out (to be) a blessing to all of South America," said Seyedin.

The relaxed rules of CEPA will increase the ability of American companies to co-invest with Hong Kong companies, he added, thus giving the Hong Kong business community a head start. For example, CEPA will allow the Hong Kong banking industry to invest in larger projects and US banks in Hong Kong can be part of that. There are restrictions right now that give access to only one or two US banks. The opportunities for the growing number of Hong Kong banks on the mainland increase the possibilities for American businesses to gain access to the China market.

When asked to compare the PRD with the Yangtze River Delta (YRD), Seyedin produced a survey conducted earlier this year by the American Chamber of Commerce. Of the 205 respondents, 75 per cent chose the PRD over 21 per cent in favour of the YRD as the first choice for an investment location, with 1 per cent preferring the Bohai Bay Rim.

"Most foreign-invested firms are happy with the business environment in the PRD," insisted Seyedin. This is confirmed by the survey results, which indicate that 69 per cent of the respondents consider the PRD "excellent" or "good" for investment. Likewise, 68 per cent expressed intentions of increasing investment levels in the next 12 months, with 39 per cent slated for new factories, 27 per cent for new equipment and 9 per cent for establishing retail outlets.

The vast China market has been a major magnet for foreign firms. Of all the firms polled, 76 per cent are already selling in the domestic market of China, and of those not yet providing products or services here, 25 per cent plan to take the plunge in the next year.

However, difficulties still exist in the delta. Taxation is rated as the biggest issue by 16 per cent of the respondents. This is followed by customs, 15 per cent; talent, 11 per cent; regulations, 10 per cent; import and export procedures, 9 per cent; foreign exchange controls or labour, 7 per cent each; intellectual property or security, 6 per cent each; social security, 5 per cent; and registration or electrical supply, 4 per cent each.

Overall, China offers the best business environment, including a stable government, an educated workforce, an ever-improving infrastructure and a market everyone wants to break into. But Seyedin feels that US businesses should make more of an effort to understand China.

Last year, for the first time, the US became the largest foreign investor in South China, excluding Hong Kong and Taiwan. Yet misunderstandings still exist. The process of profit repatriation is a case in point. If you invest your money properly within the regulations and if you register your project properly with SAFE (the State Administration of Foreign Exchange), you can then repatriate your funds with no problems. But if you find "an easier way", you may have a harder time getting your money back, Seyedin advised.

He further clarified that the ability to realize profits in China is much faster than elsewhere. "You have a very large market that is growing rapidly. If you invest here, every day your market gets bigger. One should expect to run a profitable project in no more than two years. In industries where competition is fierce, profitability may show up in three to five years," Seyedin reasoned.

"The other thing one has to look at from an investor's viewpoint is how many years it takes to get your money back, which is different from turning a profit. It's not scientific, but my rule of thumb is that most investors can get 100 per cent of their money back within five to six years. This is a very short period of time compared to the US or European markets," analyzed Seyedin.

Exuberant as he was on the prospects for profits in China, Seyedin was very diplomatic about his stand on the valuation of China's currency. "I personally believe the RMB is a strong currency, which leads to a strong economy and a strong country. Some people in the West may feel it is undervalued. It would benefit the West if it were overvalued. On the other hand, the stability of the RMB is helping China get over the Asian crisis, helping neighbouring economies like that of Hong Kong survive. China should decide what's best for its own economy," he said.

As for US investors in China, the impact of possible currency fluctuations depends on whether one holds RMB or US dollars, how much raw material one imports and where the bulk of a company's products is sold. "The reality is, American companies that export are making a profit, as well as US exporters to China. Changing the value of the currency will artificially benefit one side or another.

The business community will quickly adjust, taking only a few weeks. I'm not going to fault the system because I think it is working as planned," said Seyedin. "Ultimately, I would like to see a fully convertible currency, which will make doing business here much easier. I don't know whether this is the right time, but as we move forward we would like to see less trade barriers and more currency convertibility."

Seyedin was impressed with "the substantial changes that take place every week or every month" in the country. "China has evolved from a place with great potential but few laws or regulations 13 years ago when I first came here, to a country that, at the minimum, has the foundation of every legal structure you need. What needs to be done is to build on the momentum."

And a businessman like Seyedin is not only benefiting from all the changes, but also pushing for changes through helping the 2,000 American businesses in Guangdong Province.

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