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World SME Expo 2004 On-Site Survey of Mainland Enterprises Hong Kong Trade Development Council

World SME Expo 2004 On-Site Survey of Mainland Enterprises Hong Kong Trade Development Council November 2004. Methodology. Date of Survey : November 16, 2004 Target : 267 representatives from Chinese mainland enterprises Format : Face-to-face interview at the Expo venue.

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World SME Expo 2004 On-Site Survey of Mainland Enterprises Hong Kong Trade Development Council

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  1. World SME Expo 2004 On-Site Survey of Mainland Enterprises Hong Kong Trade Development Council November 2004

  2. Methodology • Date of Survey : November 16, 2004 • Target : 267 representatives from Chinese mainland enterprises • Format : Face-to-face interview at the Expo venue

  3. Visitor Profile (I) Q2 Distribution of Enterprises by City Distribution of Enterprises by Region % Southern China Guangdong Hainan Fujian* Others Northeastern China & others Hunan Shandong Liaoning Chongqing Jilin Others Eastern and Northern China Shanghai Zhejiang Beijing Jiangsu Others Eastern and Northern China 16% * Northeastern China and Others 27% Southern China 57% Respondents: 267visitors * < 0.5%

  4. Collectively-owned 3% State-owned 10% Visitor Profile (II) Q3, Q4 Nature of Enterprise Nature of Business • Majority in following Sectors • -Electronics, Technology products & accessories • Ceramics and arts and crafts • Metal products & decorations Others3% Others 1% Social Service 5% Investment & Finance 3% Manufacturer 49% Commission Agent 3% Joint stock 14% Legal Service 4% Private 72% Retailer 4% Importer / Exporter 15% PropertyDeveloper 5% Wholesaler 9% Respondents: 267visitors

  5. Business Turnover of Surveyed Mainland Enterprises in 2003 Q25 % Less than Rmb 5 million Rmb 5 million to less than Rmb 10 million Rmb 10 million to less than Rmb 50 million Rmb 50 million to less than Rmb 100 millon Rmb 100 million or above Respondents: 267visitors

  6. Awareness of Facilitation Measures for Mainland Enterprises to Invest in Hong Kong Q17 Respondents: 267visitors

  7. First PrioritySecond Priority Future Development Goals of Mainland Enterprises Q6 % Expand overseas markets Increase domestic sales and expand market shares Increase product / service competitiveness Strengthen internal management capability 20 27 28 15 Respondents: 267visitors

  8. Difficulties / Hurdles of Mainland Enterprises in Business Development Process Q8 % Insufficient fund for development Shortage of talents Restricted access to market information Restricted access to overseas market sales network and channels Inadequate product development capability Internal management failing to cope with business expansion Insufficient corporate and product advertising and promotion Ineffective communication with overseas clients or vendors Logistics and transport services failing to cope with day-to-dayImport / export needs Respondents: 267visitors

  9. First PrioritySecond Priority Mainland Enterprises’ Most Sought-after Funding Channels Q7 % Project Finance Bank Loan Listing in Mainland Stock Market Listing Offshore Bond Issuance Respondents: 267visitors

  10. Usage of and Demand for Services Offered by Hong Kong/Hong Kong Companies in the Mainland Used before Intend to use in future Services demanded % Loan or financing 36 Marketing and promotion 30 Personnel training 19 Overseas market research 19 and analysis Business partner / agent 18 Management consulting 17 Legal issues and advisory 15 service % Respondents: 267visitors

  11. Current Status of Mainland Enterprises’ Business Operations in Hong Kong Q13, Q14 Current Status of Mainland Enterprises’ Business Operations in Hong Kong Anticipated Business Operation of Mainland Enterprises in Hong Kong No plans to set up office or seek agent / business partner in HK in the short term 38% With office / branch / agent / business partner 37% With plans to set up office / branch or seek agent / business partner in HK over the next 1-2 years 62% Without any business operation / presence 63% Respondents: Representatives of 169 surveyed mainland enterprises which currently do not have any business operation/presence in Hong Kong Respondents: 267visitors

  12. Mainland Enterprises’ Expectations of the Functions of Hong Kong Branch / Partner Q14, Q15 % Explore overseas markets and establish sales network Explore Hong Kong market Seek offshore investment and business partners Gather market information Product R & D Establish supplier network and product sourcing Raise working capital or seek listing Respondents: Representatives of the 105 surveyed mainland enterprises with plans to set up office / branch or seek agent / business partner in Hong Kong

  13. Biggest Hurdles Facing Mainland Enterprises Wishing to Invest and Set up Offices in Hong Kong Q16 % High operating costs in Hong Kong Lack of understanding and information about setting up offices in Hong Kong Restrictions imposed by Hong Kong on the entry, residence and work of mainlanders Mainland authorities’ complex approval procedures for offshore investments Lack of resources on the part of enterprises Stringent foreign exchange control on mainland enterprises investing offshore Respondents: 267visitors

  14. Information/Assistance Most Needed by Mainland Enterprises Wishing to Set up in Hong Kong Q19 % Business development support offered by Hong Kong to mainland enterprises in the areas of market development, capital and management, as well as information on relevant service providers Legal protection for mainland enterprises investing in Hong Kong Operating costs in Hong Kong, such as salary, rental and professional service fees Procedures and capital requirement for mainland enterprises to set up companies in Hong Kong Restrictions on the entry, residence and work of management and other staff of mainland enterprises in Hong Kong Respondents: 267visitors

  15. Mainland Enterprises’ Intention to Invest in Hong Kong Following the Simplification of Approval Procedures Q18a, b Respondents: 267visitors Factors encouraging mainland enterprises to invest or discouraging mainland enterprises from investing in Hong Kong % Hong Kong’s high operating costs 55 Mainland approval procedures 18 Foreign exchange control 13 Entry and residence issues 11 Limited market demand 3 Respondents: Representatives of the 94 surveyed enterprises which may or may not set up office / business in Hong Kong

  16. Characteristics of Guangdong Enterprises Guangdong Enterprises Non-Guangdong Enterprises • Higher awareness about the simplification of approval 63% > 47% • procedures for mainland enterprises investing in Hong Kong • More interested in exploring overseas markets 75% > 65% • More enterprises have set up office / branch or 52% > 23% appointed agent / business partner

  17. Characteristics of Non-Guangdong Enterprises Guangdong Enterprises Non-Guangdong Enterprises • Higher average business turnoverRmb33.8 million < Rmb 46.86 million • Greater need for development capital - More enterprises consider capital shortage as a hurdle in 29% < 56% the process of business development • Interested in project finance as a means of funding 55% < 71% • Interested in making use of Hong Kong financing services 27% < 45% • More enterprises consider the lack of understanding and 21% < 38% information on setting up in Hong Kong a hurdle in investing in Hong Kong

  18. Summary

  19. Summary - I Development of Mainland Enterprises • 70% of the mainland enterprises consider expansion into overseas market as their top priority development goal. Guangdong enterprises are especially keen in this respect compared to other parts of the country. Expanding sales and market share in the domestic market is also a major development target of mainland enterprises. • Mainland enterprises encounter various difficulties and hurdles in their business development process. Over 40% of them are faced with capital shortage. The situation of non-Guangdong enterprises is worse than that of their Guangdong counterparts. Other hurdles include the shortage of talentsand limited access to market information.

  20. Summary – II • Over 60% of the surveyed mainland enterprises which do not have a business presence in Hong Kong indicate they intend to set up an office or appoint business agents in Hong Kong over the next one to two years. Most of them expect their Hong Kong business partners will help them establish sale networks in overseas and Hong Kong markets. • Usage of the services of Hong Kong companies by mainland enterprises will increase. Currently, less than 30% of the surveyed mainland enterprises have used Hong Kong services. However, the vast majority (90%) of them indicate that they would use the services offered by Hong Kong companies in the mainland in future. Services that are most sought after include financing, marketing and promotion. Development of Mainland Enterprises in Hong Kong

  21. Summary – III • About two-thirds of the mainland enterprises indicate that they are more interested in investing in Hong Kong following the simplification of approval procedures. The relatively high operating costs continues to be the main reason for not setting up in Hong Kong. Simplified Approval Procedures for Mainland Enterprises Investing in Hong Kong

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