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Hong Kong General Chamber of Commerce
South China Morning Post
Pearl River Delta Conference

Distinguished Guests, Ladies & Gentlemen,

Good afternoon. It gives me great pleasure to attend this conference to share with you my vision of the Pearl River Delta (PRD) as a major regional logistics hub.

As many of you know, supply chain management, logistics and the economic integration of Hong Kong with the PRD are my favorite subjects, not only because they closely affect our present and future livelihood but also because they are always intellectually challenging.

HONG KONG AND the PEARL RIVER DELTA

Hong Kong has always had unbreakable ties with the PRD, be it social, cultural or economic. Economic reforms initiated by Mr Deng Xiaoping in the late 1970’s and the establishment of special economic zones in southern China have served to make those ties even stronger. Furthermore, cooperation between Hong Kong and the PRD has given rise to tremendous opportunities for the two economies.

With the opening of the PRD to foreign investment, Hong Kong’s production base has been relocated to cities like Shenzhen and Dongguan. As a result, Hong Kong’s domestic economy has been able to become more service-oriented, so much so that today Hong Kong has blossomed into a full-fledged service economy with up to 85 percent of our GDP attributable to services. We have been able to achieve this, given our expertise and experience in global trade, by assuming the role of a supply chain manager and logistics provider.

On the other hand, the PRD has experienced enviable economic growth in the last quarter-century and has become as an economic center of the region. From 1980 to 2000, the GDP of the PRD grew by an average of about 17% per annum, and per capita GDP is expected to double in the next 10 years. Now that it has established a strong industrial base, the PRD is following the footsteps of Hong Kong and is keen on developing higher value-added services by aspiring to become a logistics hub of the region servicing the Mainland of China and even the entire Southeast Asian region. Obviously Hong Kong has a crucial role to play in that process.

Supply Chain Management & Logistics – the future of the Hong　Kong economy

I am sure you will agree that entry into the World Trade Organization will give the PRD and the entire Chinese economy opportunities to enter a new phase of development. Investment and trading opportunities are expected to abound in the coming years as China fulfils her WTO obligations. Under such circumstances, the urgency for the PRD to become a logistics hub is thus very obvious, and Hong Kong will need to expeditiously forge closer links with the PRD in order to capture the opportunities that will arise.

The question for us at this point is “How should we position ourselves in order to take advantage of the new scenario?”

I firmly believe that while we diversify into other value-added services, we must never forget that Hong Kong’s fundamental and unique strength still lies in trading. With our well established strengths in global trade – in terms of infrastructure, knowledge, experience, reputation and track record – Hong Kong can, and should aspire to be a supply chain management center of the region. To do that, Hong Kong needs a strong logistics industry that can help us evolve from being a middleman to an integrator. I would say Hong Kong’s economic future depends to a large extent on our supply chain and logistics capabilities.

To further strengthen and ensure our position as a supply chain management base, it is crucial that we make logistics a key economic activity of Hong Kong. I am glad that the HKSAR Government has seen that need and is determined to develop Hong　Kong into a logistics hub of the region, thereby ensuring Hong Kong’s long-term competitiveness in global and regional trade.

Today, Hong Kong is not only the world’s busiest container port in terms of throughput but also the world’s Number One international air cargo center. Hong　Kong International Airport (HKIA) handles over 2 million tonnes of air cargo a year and that tonnage is projected to grow at a rate of 6 percent per year in the next 20 years. It is interesting to note that of these 2 million tonnes of air cargo, about 70 percent originate from the PRD. As the movement of goods becomes increasingly dependent on air (nearly 30 percent of Hong Kong’s external trade value is by air) and as our supply chains have larger and larger geographical coverage, it becomes more and more crucial that we position ourselves as a dominant air hub.

Logistics infrastructure – an integrated approach

To succeed in that new role, Hong Kong requires a forward-looking and integrated approach that must begin with the planning of an efficient transportation infrastructure. To capture growing trade opportunities that come with the Mainland’s increased integration with the global economy, Hong Kong must have excellent air, land and sea links that facilitate trade. We enjoy a unique relationship with the PRD and are in an excellent position to take advantage of that relationship to reinforce our status as an intermediary between the PRD economy and the world market.

Economic Integration & Infrastructural Links with the PRD

Hong Kong has been transforming itself into a center of information that coordinates and integrates service providers in the Mainland as well as the Asia Pacific. As such, a greater degree of integration with the PRD is essential and inevitable. In this integration, accessibility is of prime importance. I am glad that the HKSAR Government has recognized the need to enhance infrastructural links between Hong　Kong and the Mainland to facilitate the increasing flow of economic and social activities. One of the priorities of the SAR Government is to improve inter-modal transport between Hong Kong and the Mainland to ensure the smoother flow of goods and people across the region, thus enhancing the efficiency and competitive edge of both Hong Kong and the PRD.

Role & Initiatives of HKIA in the Link

Hong Kong International Airport is a key element of Hong Kong’s infrastructure. It has a pivotal role to play in supporting the SAR Government’s efforts to improve infrastructural links between Hong Kong and the PRD and to ensure that Hong Kong and the PRD can grow together into a regional logistics hub.

Given that mission, our focus is on strengthening the facilities and services available at the airport through the provision of multi-modal transport links that can enhance our connectivity and accessibility in the region. We are also actively forging stronger cooperation with other airport operators in the PRD.

Needless to say, our multi-modal concept embraces air, land and sea links. To make our multi-modal links work, we are undertaking a number of major initiatives, including development of SkyPlaza across from the passenger terminal building, an on-airport logistics center, a logistics park at Tung Chung and other logistics facilities. SkyPlaza is scheduled for completion in the year 2005 and will consist of four office blocks, including the Airport Authority’s headquarters, the World Trade Center tower, commercial facilities, shops, airline group check-in counters, and a cross-border coach departure lounge.

Land Transport

Currently, over 160 coaches leave the airport every day, carrying over 1.6　million passengers a year to various destinations in the PRD. Having a cross-border coach departure hall in SkyPlaza will further facilitate land transport to, and from the airport, as well as enhance passenger service.

A large percentage of our air cargo is transported by truck between HKIA and the PRD. With the introduction of bonded truck services operated by our two air cargo terminals to Guangdong, a certain amount of goods can now be shipped with one-stop customs clearance.

I foresee a growing demand for land transport between Hong Kong and the PRD, in particular after the opening of the Beijing Zhuhai Expressway at the end of the year. The SAR Government will therefore need to expand and extend our freeways to enhance Hong Kong’s accessibility and connectivity to all areas of the region and beyond.

Sea Transport

With the opening last March of the on-airport Marine Cargo Terminal, HKIA is now directly connected to some 21 ports in the PRD via daily river vessel shuttle services. Of equal importance is that one-stop shop service is provided by the terminal operator, including round-the-clock on-site customs clearance and truck delivery services between the terminal and air cargo handling facilities at the airport. This facility is also of great strategic importance to us as we reinforce our position as the premier gateway of southern China, and as we aspire to become a logistics service management center for the region.

For passengers, Phase 1 of our ferry service will commence early next year, linking HKIA to 7 ports in the PRD from the start. This service will facilitate seamless transfer of passengers from ferry to aircraft (similar to what you now experience with aircraft-to-aircraft transfers), without the need for border control formalities. Phase 2 of this service with a modern ferry terminal will be ready by 2005. In addition to serving direct aircraft transfers, there will be full border control facilities for passengers visiting Hong Kong. They can do business or shop at SkyPlaza, visit the Exhibition Center or go to Disneyland.

Air Transport

As the world’s busiest air cargo center serving an expanding network of some 135 destinations in 42 countries, including 42 Mainland cities, HKIA plays an important role in the economic integration between Hong Kong and the PRD by acting as the natural gateway and transit point of the region. Half of the world’s population is within only 5 hours’ flying time from Hong Kong.

We also recognize the need to forge an alliance or closer cooperation with the other airports in the PRD to ensure our position as the logistics hub of Asia. Last year we initiated a high-level get-together between HKIA and the other four airports in the PRD, namely Shenzhen, Guangzhou, Zhuhai and Macau, to exchange views on matters of common interest. The five airports have agreed to actively pursue opportunities for bilateral and multilateral cooperation, including cross-boundary issues, tourism, inter-modal transport links, future development of the Mainland’s domestic and international aviation industry, and China’s accession to WTO. We have also agreed to maintain a constant dialogue by holding regular meetings, hosted in turn by each airport. This is an encouraging development as there is now a consensus among us – the so-called A5 – on the need for greater cooperation rather than competition. I believe from now on there will be closer and more constructive cooperation between the five airports. On the other hand, each one of us will also maintain our individual identity and role in the region.

Logistics Center

The Logistics Center that is being built at the airport is scheduled for completion next year. When it becomes operational, the center will provide a wide range of logistics and supply chain management services, including inventory management, supply and distribution, shipment, strategic storage, specialist cargo handling and special packing. Our partner in this project brings with it a wealth of experience and expertise in logistics management as well as a strategic alliance that encompasses the Mainland. This facility will no doubt add value to the development of Hong Kong and the PRD into a regional air hub.

Logistics Park

The Airport Authority has proposed the development of a logistics park in Northern Lantau in close proximity to the airport to create a hub to service high-value and time-sensitive products like computer parts and components, and pharmaceuticals that can be handled or processed in Hong Kong before their onward transfer to the PRD by air, land or sea. Similarly, goods from the PRD can be handled in the same manner before their onward transfer to regional or international destinations. We believe this is a sound and feasible idea that will add value to our logistics services and we are pleased that the response from the SAR Government and industry has been positive.

Conclusion

All of the initiatives and multi-modal transport infrastructure that I have just discussed with you will require investment from the SAR Government, the Airport Authority and the private sector. The Airport Authority has already mapped out its role in the integration of Hong Kong with the PRD in its HKIA Master Plan 2020. The SAR Government will need to invest in the necessary infrastructure to enhance Hong　Kong’s connectivity and accessibility in the region. Last, but not least, the industry will need to upgrade its capabilities in supply chain management by committing the necessary resources and investment.

Opportunities arising from China’s entry into the WTO, globalization, and the development of the Pearl River Delta logistics hub are out there for us to capture. Hong Kong is in possession of a wealth of experience and knowledge in global trade and that puts us at a better position than any newcomer. What we need now is the determination to act quickly. After all, timing is what supply chain management is all about.

Thank you.