The Black Man’s Burden: The Diaspora's Urgent Mandate to Awaken Africa's Sleeping Giants
Part II: How the Chinese Diaspora paved the way for the Chinese Economic Miracle - Hong Kong ext
At the beginning of the 1980’s, Mainland China was one of the poorest countries in the world. Its income per capita was barely over $300 per annum, or close to a third that of Nigeria’s at the time (yes, you read that correctly). None of China’s universities had been in operation for at least 10 years. Much of the working population were engaged in subsistence farming, within communist society, and did not know the first thing about making clothes, light electronics among other low quality products for export, to the minute specifications of countless companies the globe-over.
Hong Kong businesses and entrepreneurs played an indispensable role as middleman during the first few decades of the Chinese Economic Miracle. They took charge of and guided China along the value creation process of manufacturing for export, covering:
(a) The registration and incorporation of foreign enterprises wishing to set-up shop on the Mainland.
A legal system based on English common law, lighter capital restrictions and superior financial services, strong protection of property rights, the use of the English language as a lingua franca and low taxes, ensures that Hong Kong has consistently ranked among the top 5 best places to do business in the world for decades.
Even now, the city is still largely able to utilize these assets as part of China’s One Country, Two Systems policy. For instance, they recently floated an Ethereum ETF (exchange traded fund) in spite of the fact that cryptocurrency payments and deposits are banned on the Mainland. I digress though, such a reliable and tested business environment meant that lots of foreign firms were able to set-up companies in Hong Kong with the guiding hands of local expertise and support, which could then easily operate on the Mainland;
(b) Management of Made in China factory operations.
A lot of China’s manufacturing did, and still does largely occur in Guangdong, specifically within the Pearl River Delta Region. And to begin with, Hong Kong businesspeople were the ones directly running or managing the sub-contracting of the overall value chain. Since they were well-placed to leverage their management expertise and extensive experiencing in manufacturing to add value to factory operations in the rest of China.
Indeed, in 2001, 53,000 Hong Kong based companies had factory operations in Guangdong. Together, they employed in excess of 10 million people at a time when Guangdong’s total population was counted at 80 million;
(c) Raising finance for Chinese expansion.
I don’t think that much has to be said about Hong Kong’s background and tenure in banking and finance. So it’s to no one’s surprise that Hong Kong listed stock exchanges have been used as financing vehicles for Chinese companies since the 1980’s. You only have to have a brief browse of the Hong Kong Exchange (HKEX) website to see the number of Mainland Chinese corporations who are listed on the platform. A who’s who of names appear such as tech and content conglomerate Tencent, the Bank of China, electronics and hardware firms Xiaomi and Lenovo, as well as the largest EV maker in the world, BYD.
And it makes sense for them to tap into Hong Kong equity markets for additional capital; Hong Kong stock markets are more mature, established and transparent than their Mainland counterparts. Fewer capital and financial restrictions apply to Hong Kong listed companies compared to those listed on the Mainland as well;
(d) An efficient and competitive sales partner/merchandiser.
As a result of Hong Kong’s historic status as an entrepot for the rest of the Asia-Pacific, the city plays host to lots of international visitors and residents. Thousands of foreign firms have set-up regional headquarters and local offices there. Serving as fertile soil for deal-making. Because Hong Kong businesses did, and still do play a crucial role in matching Chinese factories with international buyers.
International buyers have minute specifications for their products that can change on a dime and demand complex manufacturing processes, so the pairing process can make or break a particular line of products or even a company. Sourcing is serious business, with Hong Kong’s merchandising expertise being essential to China’s emergence as a leading global exporter. Even today, a lot of Chinese-made good are sent to the city and then re-exported abroad (all close to $700 billion of them, a figure close to double that of Hong Kong’s GDP).
This is just Hong Kong btw, we haven’t even gotten started on Taiwan yet! We will delve into Taiwan’s role in delivering China’s economic miracle in more detail in the next instalment of this series.