It is fitting that my July 1 HKSAR anniversary contribution to the Japan Times this year is upbeat.

In Japan, as in Hong Kong, there is a real sense of economic revival taking shape. That optimism in Hong Kong is fuelled by the growth in the flow of people, funds and goods and services between Hong Kong, the Mainland and Japan. 

Recent business surveys indicate some 70% of Japanese companies are considering establishing a presence in China, either for marketing or production purposes.  Increasingly, Japanese companies have found Southern China, especially the greater Pearl River Delta attractive.

3,000 Japanese firms in Pearl River Delta

There are already some 3,000 Japanese businesses operating in the PRD and the numbers are increasing. About 40% of those indicated they have chosen the PRD because of its proximity to Hong Kong.

Hong Kong has been used by many Japan businesses as a base from which to service their business activities in the PRD. In fact, most international firms in the PRD have management offices in Hong Kong. Many Japanese business executives prefer to live in Hong Kong.

Free flow of information, a reliable legal system based on common law jurisdiction, a duty-free port, favourable tax regime, world class transportation and logistics infrastructure are some typical factors often cited as affecting the decision to use their base in Hong Kong from which to integrate their supply chain activities taking place between the PRD and the rest of the world.

Regional concept boosts business collaboration

This Hong Kong-Mainland business collaboration model will be further reinforced by the recently announced Pan Pearl River Delta region concept.

The PPRD region, also known as "9+2", involves nine provinces - Fujian, Jiangxi, Hunan, Guangdong, Guangxi, Hainan, Sichuan, Guizhou and Yunnan as well as the Hong Kong and Macau Special Administrative Regions.

The PPRD region is comparable to the 10-nation ASEAN in terms of population, size of economy, total volume of external trade and intake of foreign investment.

Last year the region registered a collective GDP of US$630 billion, accounting for about 40% of China's total economic output. This regional GDP is forecast to exceed US$1 trillion by 2010 and reach US$2 trillion by 2020.

The creation of the PPRD concept follows hot on the heels of the full implementation of the Closer Economic Partnership Arrangements between Hong Kong and the Mainland.

While CEPA serves to enlarge the size of the marketplace that Hong Kong can have immediate access to, the PPRD concept provides a further framework for such benefits to be exploited with even greater intensity within the region. This concept will allow Hong Kong to leverage her strengths to create win-win business collaboration with the Mainland as well as overseas partners in the region.

CEPA, PPRD catalysts for Japan-HK business

CEPA and PPRD are seen as catalysts for attracting Japanese companies to strengthen their business activities with Hong Kong. Already, some 800 CEPA certificates of origin have been issued, and around 600 applications for Certificate of HK Service Suppliers have been approved.

The main beneficiaries under the arrangement come from the retail, advertising, logistics and distribution sector on the services side and the textiles, electronics and pharmaceutical sectors on the manufacturing side.

Over the past year, apart from CEPA and PPRD, there have been two other developments in Japan and Hong Kong's bilateral relationships which I believe will lead to an increase in the flow of people and business activities between Hong Kong and Japan.

On April 1, the Japanese Government granted visa-free access for Hong Kong passport holders wishing to visit Japan.

On March 23, the Hong Kong signed the first Arrangement of Co-operation with Japan to forge closer ties in the development and sharing of information and communications technology.

All these developments will have an impact on fostering the growth of collaboration amongst the Mainland, Hong Kong and Japan to the benefit of all three economies.

(HK Economic & Trade Office Principal Representative in Tokyo Alex Fong wrote this article, published in the Japan Times on July 1.)