Hong Kong has seen an expansion of investment and acquisitions in sectors such as retail, property and banking, reports Oswald Chan.

While some Hong Kong-based blue-chip companies are selling their local business assets, a spate of mainland enterprises are expanding into the city's retail, property and banking sectors in search of business diversification.

Mainland-based retail and beer conglomerate China Resources Enterprise Ltd confirmed at a July 21 news conference that it has submitted a bid for tycoon Li Ka-shing's Hong Kong supermarket chain at a "reasonable price". CRE Chief Financial Officer Frank Lai added that CRE may partner with United Kingdom-based grocery chain Tesco PLC to bid for Hutchison Whampoa's ParknShop supermarket chain.

CRE said that it may raise debt and does not rule out selling "non-core" assets to fund the ParknShop purchase. The sale of the local supermarket grocery chain will fetch an estimated $3 billion to $4 billion.

In the property sector, mainland property developers have become more aggressive when bidding for land parcels in Hong Kong since 2012. China Overseas Land and Investment Ltd successfully grabbed two land parcels in the Kai Tak region, whereas the Hong Kong government specified that property developers can sell the residential flats built on those two parcels only to Hong Kong permanent residents.

Mainland flagship property developer China Vanke Co, in cooperation with Hong Kong blue-chip developer New World Development, also successfully bid for a land parcel in Tsuen Wan early this year. Vanke said that its interests in the Tsuen Wan parcel will be injected into its locally listed subsidiary, Vanke Property Overseas.

In the banking sector, mainland business conglomerate Yuexiu Property Co Ltd was reported as one of the bidders for the Hong Kong-based Chong Hing Bank.

The mainland companies are seizing the opportunities to "go out" since the financial crisis of 2008. Externally, developed and developing economies have a huge demand for overseas capital, making overseas enterprises more receptive to Chinese acquisitions. Internally, the need to acquire markets, resources, technologies and brands as well as to slash costs require Chinese enterprises to "go out" on a larger scale.

However, the overseas expansion trajectory is never easy. External challenges stem from rising overseas investment protectionism and increasing global investment market risks. Internal challenges emerge from mainland enterprises' scarcity of international management experience, inadequate assessment of the global investment environment, and a lack of international talent.

Due to the numerous obstacles the mainland faces when expanding overseas, mainland companies may now find Hong Kong to be an attractive springboard.

According to China CITIC Bank International Ltd, Hong Kong plays the irreplaceable role of providing a bridge for "going out" Chinese firms. This is because Hong Kong practices a high degree of openness and freedom in its investment policies, and has low capital controls, low taxes and a wealth of professional-services talent.

"The mainland enterprises should further leverage off this bridging role of Hong Kong for their large-scale 'going-out'," China CITIC Bank International Chief Economist Liao Qun said.

"Meanwhile, Hong Kong should enhance its role as the bridge, steer clear of negative elements that are unfavorable to the city's economic development, and become more open, free and efficient," Liao added.

Daniel Poon, the Hong Kong Trade Development Council's principal economist, also was optimistic about the benefit of Hong Kong to mainland businesses. "With elegant historical juxtaposition, Hong Kong has moved from being solely a gateway for foreign investment in China to also being a springboard for China's investment in the rest of the world," he said.

Many foreign investment enterprises are still large State-owned enterprises from the mainland, but the number of private enterprises is steadily increasing.

The Hong Kong government said the mainland was the most important source of direct investment in Hong Kong. The majority of the stock of investment was related to service industries, including investment and holding, real estate, professional and business services; banking; and import/export, wholesale and retail trades.

The HKTDC figure shows that the mainland's cumulative investment in Hong Kong amounted to $261.5 billion at the end of 2011, accounting for 61.6 percent of the mainland's total outward FDI.

Because of the international business environment of Hong Kong, the city is a highly attractive market for foreign direct investment. Hong Kong's global FDI inflows ranked third in 2012 ($75 billion), after the United States ($167.6 billion) and the Chinese mainland ($121.1 billion), according to the UNCTAD World Investment Report 2013.

The mainland is poised for further overseas business expansion in the future as the country's enterprises still have a huge appetite for overseas technology, management skills and brand acquisitions.

According to China CITIC Bank International, the mainland's outbound FDI will have a compound annual growth rate of over 20 percent in the next five years, subsequently reaching more than $200 billion in 2017.

Contact the writer at oswald@chinadailyhk.com

(China Daily USA 08/27/2013 page16)