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Connector to Cambodia’s Opening Trade Window podcast

Cambodian Minister of Commerce Pan Sorasak with HKTDC Executive Director Margaret Fong
Cambodian Minister of Commerce Pan Sorasak with HKTDC Executive Director Margaret Fong, who met with the Cambodian delegation during its Hong Kong visit in September

Cambodia is determined to ascend the regional trade value chain by, among other things, leveraging on Hong Kong’s advantages. A high-level Cambodian trade delegation visited Hong Kong in September to explore new areas for investment in the country. The visit resulted in an agreement to sign a Memorandum of Understanding (MoU) with the Hong Kong Trade Development Council (HKTDC) to develop closer trade and business ties between the country and Hong Kong.

Hong Kong is the gateway to Chinese mainland investors and a super-connector to the mainland’s Belt and Road Initiative, say visiting high-level Cambodian ministers. They see the Belt and Road as a “big gift” – while Hong Kong is also viewed as a connector for developing Cambodia’s travel goods industry, including to the US market

Of particular significance is Hong Kong’s gateway to and from the Chinese mainland and strategic position in China’s Belt and Road Initiative, said Cambodian Minister of Commerce Pan Sorasak: “Hong Kong allows us to benefit from attracting Chinese investors. Hong Kong has all kinds of ingredients, a place for potential investment, the know-how, the infrastructure, which is why we’ll sign an MoU.”

Luggage Diplomacy

Sok Chenda Sophea
Sok Chenda Sophea, Secretary General of the Council for the Development of Cambodia

The mission focused on attracting Hong Kong and Chinese mainland travel goods manufacturers to set up in Cambodia, given the country’s substantial manufacturing experience and favourable labour costs compared to other regional centres. The group is taking a proactive approach, said Sok Chenda Sophea, Secretary General of the Council for the Development of Cambodia, as the group met Hong Kong industry representatives and manufacturers. “It is important for us to diversify [from the garment business] and to attract other types of activities. No other place but Hong Kong would allow us to engage those manufacturers as well as buyers.”

Investors in Cambodia can also expect to benefit from new business opportunities resulting from the expansion of the United States General System of Preferences (GSP) programme. The expanded trade preference permits travel goods, such as luggage, backpacks and wallets made in Cambodia and several other countries, to enter the US duty-free; in Cambodia’s case, saving between five per cent and 20 per cent on import duties.

William Heidt
US Ambassador to Cambodia, William Heidt, accompanied the Cambodian delegation to meet with Hong Kong businesses

Accompanying the delegation was the US Ambassador to Cambodia, William Heidt, who said that Cambodia is among 43 less-developed countries with such access to the US market, and is the most competitive of these in the travel goods and related sectors. “It is the combination of the US market, our trade preference programme, Cambodia’s very skilled workforce, as well as Hong Kong’s global reputation as the centre for the travel goods industry.”

Moving up the Value Chain

Cambodia
Moving to the next level of development is a key economic strategy for Cambodia (photo: Shutterstock.com)

Hong Kong companies produce luggage and handbags across the price spectrum, mainly from factories overseas and across the border, while undertaking quality control, market development, product design and production planning – and with the advantage of huge market potential from Chinese mainland tourists, the fastest-growing group of international travellers.

Among Cambodia’s production advantages, about half the population is under the age of 30, while the country relies on increasingly skilled workers for a more advanced industry than garment-cutting and sewing, which itself creates revenues of more than US$6 billion annually. Moving to the next level of development is a key economic strategy for Cambodia, particularly as a member of the ASEAN Economic Community, which was formed last year to facilitate the free flow of goods, services and labour among member states.

“Don’t think of Cambodia as a market of 15 or 16 million consumers, but think of 650 million. Also consider the complementarities: you can use members and ourselves for products ‘made in ASEAN’ and export to Hong Kong and the Chinese mainland.”

As Minister Pan pointed out, foreign manufacturers and investors can use Cambodia as a trade platform and part of the production and export chain across ASEAN. “Don’t think of Cambodia as a market of 15 or 16 million consumers, but think of 650 million. Also consider the complementarities: you can use members and ourselves for products ‘made in ASEAN’ and export to Hong Kong and the Chinese mainland.”

Free Trade Agreement

Another pending advantage is the expected signing of the ASEAN-Hong Kong Free Trade Agreement (FTA), with negotiations due to be completed this year. Trade relations are already highly significant. In 2015, the ASEAN bloc was Hong Kong’s second-largest trading partner after the mainland, while Hong Kong was ASEAN’s seventh- largest, with total trade between Hong Kong and ASEAN amounting to US$105 billion. ASEAN was also the second-largest market for Hong Kong-routed goods, while the city is a strategic entrepôt between the mainland and ASEAN. Re-exports of mainland goods to ASEAN last year exceeded US$23.5 billion, with an average annual growth rate of 4.5 per cent over the past four years – with expectations of a far higher growth rate to come over successive years following completion of the FTA.

Trade Window Opening

Cambodia expects to fit well into the picture as one ASEAN country whose “trade window is opening,” as Ambassador Heidt predicted. Currently, the country is Hong Kong’s seventh-largest trade partner in ASEAN, with exports to Hong Kong rising 36.5 per cent in the first three months of this year and total trade last year up 23.8 per cent. Cambodia’s GDP, meanwhile, is expected to grow by seven per cent in 2016 after easing last year. The country has developed some 14 special economic zones in the 10 years to 2015 with substantial tax and duty benefits, while last April, the Cambodian government announced a new tax regime based on self-assessment rather than negotiation, aiming to make the economy more competitive.

Belt and Road Gift

China’s Belt and Road Initiative, bringing together more than 60 countries, over 60 per cent of the world’s population and more than 30 per cent of the world’s merchandise trade, is a key facilitator to enable Cambodia to achieve its economic goals and go further, according to Mr Sok. “If you take the map of the ASEAN region, it is obvious that Cambodia is centrally located. We get a big gift thanks to the One Belt, One Road. This initiative is about connecting countries, people and markets, so the more we are connected to the region and the world, the more Cambodia can be considered as a production base.”  

As Mr Sok explained, the era of “production fragmentation,” involving partner producers in several different countries, was a model for which Cambodia has been preparing in order to plug its production capacity into the regional supply chain – and the Belt and Road will help facilitate the process.  Minister Pan added that Hong Kong’s role as a super-connector within the Initiative created important synergies for conducting manufacturing and sourcing businesses, while Ambassador Heidt noted that Hong Kong is “a regional gateway for every major American and European company, especially a gateway to US buyers and manufacturers, with a great mix of business people.”

Related Link 
Belt and Road Portal

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