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“Opportunities in Property and Retail in the Pearl River Delta”

Vice Chairman and Managing Director, Sun Hung Kai Properties Limited

The confident tone that invariably impresses me when I visit Pearl River Delta cities is a sure sign of a phenomenally expanding economy.

Across the entire delta, real GDP grew an average of 16.9% during 1980-2000, far outstripping that of Guangdong and of China as a whole. Wages and salaries continue to rise, as does consumer purchasing power. Per capita GDP in 2000 for the delta reached US$3,360, equivalent to that of the world’s upper-middle income countries. Between 1980 and 2000, the average annual increase in retail sales value of consumer goods sold in Guangdong alone was 19.8%.

The property market is also moving rapidly ahead. In Guangdong, investment in real estate development of commodity buildings grew to 65.6 billion yuan in 2000 from just 3.2 billion yuan in 1990. Over the same period, per capita floor space for urban residents rose to 20.1 square metres from 12.1 square metres. In Shenzhen, the floor space of commodity buildings sold (including pre-sale of projects under construction) amounted to 6.1 million square metres in 2000, of which 5.6 million square metres was residential space.

Such amazing growth is characteristically not fuelled by Government initiatives. It is the natural outcome of a high population concentration and a vibrant market. Taiwanese and Japanese investors have correctly read the signs, and my questions to you today are when and how can Hong Kong figure even more prominently in the growth and consolidation of the Pearl River Delta economy.

When? Hong Kong’s property developers and retailers must now move rapidly into the delta if they wish to share in the promising returns and to strengthen their credibility as industry experts. Early footholds are the key, as is timely decision making once we arrive. Market leadership in the delta’s property and retail sectors will be determined by how quickly top management can respond - and in particular by how rapidly it can appraise all aspects of a deal using its superior market knowledge. In such an economy, how wisely we use our time will count at least as much as how wisely we use each square foot.

Decision-making on the Mainland is now far less burdened with needless bureaucratic involvement. The delta is thus increasingly able to embrace modern management styles and professional project leadership in the property and retail sectors. Here Hong Kong has a very clear edge, particularly in its ability to integrate these two sectors.

How should Hong Kong participate? From a geographical perspective, integration should define our approach in the delta. Hong Kong must look for every possible opportunity to enter into the delta’s emerging cross-city alliances.

We should also consider how isolation is giving way to integration across the region as a whole. The western part of the delta is largely dominated by manufacturing for China’s own domestic markets, while the eastern half is more dedicated to manufacturing for exports. This gap needs bridging both physically and economically. Here, Hong Kong’s skills and knowledge can help create a more powerful economic bloc, of which it will in turn form an essential part.

Next, Hong Kong scores as the international city of Southern China and as such a vital link to the latest business and social trends. In particular, cross-boundary co-operation between the Mainland and Hong Kong is already showing that Hong Kong has a major role to play in demonstrating the importance to international investors of the rule of law and an upright civil service.

Indeed, the bedrock on which Hong Kong’s exemplary success has been built can now help further the prosperity of a far larger economic and geographic entity, and we should make the most of this unmatched advantage.

In social and economic terms, I would say that the Pearl River Delta has today reached the same point in its evolution as Hong Kong reached in the 1970s. This puts us in an excellent position to transfer our historically proven knowledge and skills in getting things done fast and efficiently for the benefit of society as a whole.

Bold visions like the development of Hong Kong’s new towns have always been matched by vigorous support from the private sector. In fact the private sector has typically led the way. To take just one example, the development by Sun Hung Kai Properties of integrated large-scale residential-retail complexes such as the pioneering and highly successful New Town Plaza in Shatin set standards and met aspirations very similar to those now emerging in the rapidly changing society of the Pearl River Delta.

This is just the kind of integrated development that the Pearl River Delta needs today. At its heart lies a determination to provide solid and sustained service to the people, seen as citizens as well as customers. This is how we at Sun Hung Kai Properties have built our reputation in Hong Kong and this is how we plan to enlarge it in the delta region, with its massive concentration of people and its unmatched spending power.

Of course, the nature of the market and the pace of social change both need to be carefully gauged. Even as we seek to meet popular expectations in the delta and to play a role in its social development, we must make sure that we do not get too far in front. New concepts must be introduced gradually so that their real benefits are properly appreciated and valued and are systematically absorbed into people’s everyday thinking. Here the strong cultural, psychological and linguistic ties between Hong Kong and the Pearl River Delta give us another unmatched advantage over other players.

Another important consideration is how new properties are priced. For the moment, Hong Kong and the Pearl River Delta must be considered as essentially different markets and I see little point in making direct comparisons or discussing the precise influence of one market on the other. Obviously, the Pearl River Delta cannot today support Hong Kong prices, but it will always be the case that a quality product, properly perceived as such, can command a premium price. Our overriding aim must thus always be to differentiate our offers clearly, highlighting solid accomplishments and tangible benefits and telling a credible and compelling story.

Another factor that makes the Pearl River Delta so attractive to top flight developers is that it is a market without any dominant players. This leaves ample room for growth. Driving this growth will be superior knowledge and experience. We can offer what we have learned about building a strong brand based on top quality, professional management techniques, high levels of customer service and an emphasis on training. These so-called intangibles are really the assets that make all the difference between a mere building that seeks to maximize returns per square foot and a valuable development that has been reliably designed to channel and meet specific user needs.

The experience that we at Sun Hung Kai Properties have already gained in Beijing, Shanghai and Guangzhou has already shown the importance of these principles. We are confident that we can continue to apply them successfully throughout the Pearl River Delta. Our current activity targeting mainly local residents includes a phased residential　project in　Zhongshan. Phase 1 - about 400,000 sq ft floor area - is already under construction.　 We are　also reviewing　a residential project near Guangzhou’s new airport.

Let me note finally that highly reputable retail businesses are already moving north of the boundary in order to take advantage of the delta’s unabated spending power. Many of these businesses are our valued customers and long-term shopping mall partners at Sun Hung Kai Properties. They tell us that they want us to go north with them because they know and appreciate our products and services and depend on the quality we can provide.

I am happy to share with you the names of just some of our important anchor tenants who are already operating in the Pearl River Delta or who plan to do so:

In the food and beverage sector, we have Cafe de Coral and Tao Heung Seafood Hotpot Restaurant; fashion and apparel are represented by Bossini, Giordano, Baleno, G2000, U2 and Moiselle; leading convenience stores 7-11 and Circle K are also committed as are leading supermarket chains ParknShop and Wellcome; on the department store front Jusco is a major player; finally, furniture and household goods are represented by Pricerite, who are opening a 40,000 sq.ft. outlet in Guangzhou this August and another one in Shenzhen in 2003.

Citing the forward-looking approach to the delta of such strong brands and household names brings me back to where I started - the vision of serving an enormous and concentrated consumer bloc whose rapidly growing disposable income is matched by its rising aspirations. Hong Kong can and must quickly penetrate this market, bringing its finely tuned retailing, logistics and distribution skills and its property development knowhow together in a powerful synergy.

There are many reasons, then, for Hong Kong to seek integration with the entire Pearl River Delta region and to ensure that it is in the forefront as a prime mover in the drive for greater co-operation. I believe that as responsible and experienced developers we are well placed to help integrate the development of the Pearl River Delta into a coherent economic force.

Because the prospects are so enticing, we should of course be particularly on our guard against the possibility of over-supply in the market. The solution to this problem is not increased Government interference with market forces, but a stabilizing Government presence together with a predictable supply of land suited to market needs. A policy of releasing land strategically in line with carefully thought out long-term development needs will, I believe, turn out to be an essential factor in the Pearl River Delta success story.

Again, we in Hong Kong have extensive understanding and experience of managing and working with complex land supply and demand issues. And this is just one final reason I put before you today to support my contention that Hong Kong is in an ideal position to help make an integrated Pearl River Delta work for everyone’s benefit.

Thank you.