Make money grow on mainland soil
(JAMES LEUNG)
06/06/2003
Hong Kong's much-vaunted economic integration with the mainland, especially the Pearl River Delta, is not limited to the relationship between a business centre and its hinterland, according to Nellie Fong, chairperson of PricewaterhouseCoopers China operations.She says there are tremendous investment opportunities in the mainland's agricultural sector. In addition, Hong Kong can serve as the springboard for overseas expansion by mainland enterprises, she says. Fong says she conceived the idea of investing in agricultural development while attending the Chinese People's Political Consultative Conference meeting in Beijing in March this year. "The discussions were revolving around the need to tackle the 'three agriculture problems' to achieve the target of establishing a xiaokang [well-off] society," she says. "And I said to myself, why not introduce foreign investment, technology and marketing prowess to modernize the agricultural sector as we have done so successfully for the industrial sector." Since then, she has sounded out numerous business people who have shown interest. She says that she is working on a proposal for an international producer and marketer of fruits and other produce, which is interested in the mainland. The proposal is being negotiated, and she would not elaborate further. She says there are no shortages of Hong Kong investors who have expressed a keen interest in the project. In the past, Hong Kong entrepreneurs were only interested in industrial investment to "take advantage of the plentiful supply of cheap land and labour in the Pearl River Delta," Fong says, adding that further manufacturing opportunities have shrunk. Many foreign companies are setting up in China directly without Hong Kong partners. Moreover, mainland manufacturers have acquired management and marketing skills. Meanwhile, the agricultural sector has remained wide open. Fong recalls that while visiting rural areas in Guangdong Province, she was shocked to see piles of rotting mangoes. The locals told her they did not know what to do with the surpluses. "I asked them why don't they make dry mangoes and they said they did," she says. But when she tasted what was on offer, she knew why nobody would buy it. "The dried mangoes they made not only look strange with a grayish tint, but also taste bad." Dried mangoes are a popular snack in Asia and are becoming a favourite on the mainland. "It's ironic that the dried mangoes in the supermarkets in mainland cities are all imported from Philippines or Thailand while we have tonnes rotting away in Guangdong," she says. Fong says growing fruit and other cash crops for export can bring prosperity to hundreds of millions of farmers. But so far, Hami melons and Tianjin pears are the only mainland fruits globally sold. The reason is that overseas consumers do not have confidence in the quality, according to Fong. "We keep hearing accusations by overseas consumer groups that Chinese farmers spray their crops with pesticides banned in other countries," Fong says. "There are also allegations that chemicals harmful to humans are used as fertilizers in Chinese farms. These allegations may be grossly exaggerated. But overseas consumers are not convinced. The misconceptions can only be changed with the help of a foreign brand reputed for quality, Fong says. "If Chinese farm produce is marketed under a credible brand name, they will sell." This is the central theme of her proposal to the foreign food producer. The major hurdle is the reluctance by the Chinese government to include a large variety of fruit and other agricultural produce in the Protection of New Varieties of Plants (UPOV) under the Convention on Biological Diversity. China is a signatory to the convention. But not all the fruits and plants are registered for variety protection. Fong says foreign producers and investors are reluctant to invest in large-scale production of farm produce that is not UPOV protected. The basic method of producing standardized fruit is to graft a particular breed of leaf cutting onto a known variety of root stock. Growers risk having their grafted bud wood cuttings being stolen and grafted to generic root stock. A typical agricultural project is unlikely to generate an income in less than four years. Investors must take a long-term view. Therefore, it is important that they can secure a relatively longer lease on farmland. China recently introduced land leases for as long as 30 years. This should help promote investment, says Fong. But finding land large enough for a typical project would not be simple. Large tracts of land are invariably state-owned. Fong says that potential investors will have to be prepared for long negotiations with local officials on leases. Returns however, can be attractive. "Think of the money Hong Kong people made in the '80s and early '90s from industrial investments", on the mainland, she says. "Agriculture is the next big opportunity." Her other idea is to make Hong Kong the preferred location for mainland companies to establish international headquarters. In recent years, Hong Kong has become the window to the global market, for mainland companies. Many mainland companies are keen to expand overseas. For them, establishing international headquarters in Hong Kong has many advantages considering its common law-based legal system, free flow of information and excellent support services, Fong says. She is confident Hong Kong will succeed in attracting mainland companies. "Gradually they will come to Hong Kong."
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