Hong Kong's government, companies and people need to change their mentality if they are to seize the business opportunities offered by Beijing’s One Belt, One Road (B&R) initiative, said the chairman of a company which has been active in the market for six years.
Joseph Chan Nap Kee is chairman of Kaisun Energy Group Ltd. (08203.HK), which acquired coal mines in Tajikistan in 2011 and other mining assets in Central Asia, including Xinjiang.
Kaisun also runs a mining machinery production business in Shandong and leases machinery in Central Asia; it buys zircon sand in Vietnam and sells mainly to Japan. The firm is listed on the Growth Enterprise Market.
“Hong Kong people want comfort and quick profits. They like to take Cathay Pacific and Dragonair and go to places with which they are familiar. But, to go to countries in Central Asia, you need to get visas in Beijing and take flights from airports in the mainland,” he told a seminar at Hong Kong Polytechnic University.
“The Hong Kong government is passive. It has huge reserves but traditionally does not use them to support outbound projects, let alone B&R ones. Its office is run by a retired civil servant. Hong Kong banks do not want to finance projects in Muslim or Central Asian countries.
"The Hong Kong Monetary Authority could not back us up. We have to turn to mainland banks for help. But Hong Kong companies do not enjoy national treatment, so HK companies can only line up in the shadow of big state enterprises to explore B & R projects.
"ASEAN is more familiar for HK companies but competition is keen there with money from the British Commonwealth, Japan, Korea and the United States. Again project financing is not sufficient from the banks in Hong Kong. Trade finance is the most they can get.
“Officials here talk about B&R but do not want to go to the countries involved. They are unclear about what is going on there,” he said.
B&R seeks to promote economic growth among more than 60 countries and regions along the former land and maritime Silk Roads.
But the experience of Kaisun over the last five years has not been so positive. According to figures published on its website, it accumulated losses before tax of HK$712.858 million during the 2012-2016 period.
In a statement on the website, the company blamed this on the slump in commodity prices and losses from impairment of mining assets and supply chain management receivables.
There was a sharp decline in the currencies of members of the Commonwealth of Independent States, including Tajikistan, a result of the fall of the rouble. Tajikistan is heavily dependent on remittances of expatriates working in Russia.
Chan said that, when Kaisun first invested, the governments were very welcoming. But, when they started to make profits, disputes began.
“They think you are a state-owned firm and can pay tens of millions in taxes. The taxes were a nightmare. We instituted lawsuits against unfair tax treatment but lost all the cases in court and local lawyers were warned not to work for us. We had to hire Russian lawyers.”
These countries have a system of Russian-based continental law, not common law as in Hong Kong. “Arbitration is very hard to do and very expensive in Hong Kong,” he said.
He said the HK government had no offices in these countries to support firms like his. “I found the commercial attaches of the Chinese embassies helpful. They help you if you are Chinese, whatever your passport.” They helped Kaisun safeguard its assets.
The company website statement said: “We owe our shareholders an apology for not performing well in the past few years … We believe that 2017 will be a much greater year. Commodity prices have most likely bottomed out and Belt and Road investments across the world are reaching a new high.
"The world is beginning to acknowledge the Belt and Road initiative as the current global economic situation. The group will try to seize this golden opportunity and study various investment options.”
Chan said Hong Kong could not rest on its laurels. “Two thirds of the current IPOs in Hong Kong are mainland companies and the big state companies can raise money on their own and do not need to rely on Hong Kong.”
He said Hong Kong people and companies should actively visit and learn about the B&R countries and acquire new skills, languages and experience which they can use.
“They have to learn the rules of the game and cannot rely on the market alone. We have the advantage of a double identity, being both Chinese and Hong Kong, which is considered ‘foreign’ because of our historic past and the fact that most of our business entities are incorporated in overseas jurisdictions.”
In the mainland, an increasing number of young people at middle school and university are studying Russian, the lingua franca of Central Asia, and other ethnic languages. But few people here are interested in studying non-mainstream languages.
Chan made these suggestions for what the Hong Kong government should do to compete in the B&R initiative:
1) Build specialized colleges to train interested groups to understand B&R. Speed up work with smaller private universities like Chu Hai, Hang Seng and Nang Yan, which are more flexible to introduce new courses to their academic curricula.
2) Send students to B&R countries to study and learn local languages and culture.
3) Arrange interns to work in B&R countries, particularly their government departments, to "see through" their work processes and connect them with local officials.
4) Set up a government-seeded B&R fund to match the business sector, to encourage more small and medium-scale enterprises to extend their business into B&R countries.
5) Organize an annual B&R summit in Hong Kong. This would boost tourism and awareness, as well as making the city a center for B&R.