Hong Kong’s infrastructure, coupled with its proximity to Chinese manufacturing hubs, pro-business government policies, and expanding domestic market, have created the perfect conditions for an e-commerce hub.
Editorial
On October 24, 2018, the Hong Kong- Zhuhai- Macao bridge officially opened. 400 tons of steel span 55 kilometres making it one of the longest bridges on earth. For the 70,000 passengers and 52 container trucks that make the hour-long journey from mainland China to Hong Kong, it is a gift—bridging two thriving business hubs in a feat of architectural and engineering ingenuity.
The striking gateway to Hong Kong, rising out of the Pearl River Delta, is a prominent metaphor for Hong Kong’s emerging e-commerce sector. Separate from the Chinese market, but intimately connected through careful design and mutual growth, Hong Kong’s e-commerce market is going from strength to strength.
Fuelled by the twin engines of infrastructure and a business-friendly government, e-commerce sales leapt from US$2.9 billion in 2015 to US$3.7 billion in 2017 and the sector is expected to top US$5.4 billion in 2021. As the purchasing power of ASEAN consumers rises, Hong Kong stands to benefit from the region’s expanding middle class.
Vendors source products from China’s vast manufacturing sector
Hong Kong’s proximity to Chinese manufacturing hubs like Shenzhen and Guangzhou offers a vast pool from which vendors can draw products. Shenzhen, just under two hours from Hong Kong, produces 90% of the world’s electronics and has become affectionately known as the “world’s factory”.
Many of the products produced in Shenzhen use Hong Kong’s distribution channels to connect with global customers. Its air and sea connections export to 220 countries worldwide, and with the Chinese e-commerce sector projected to be valued at more than US$1.5 trillion by 2020, these distribution channels will play a central role in China’s e-commerce growth.
Hong Kong’s air and sea links are driving an emerging e-commerce sector
The city’s geographical location in the heart of Asia puts it within a five-hour flight of half the world’s population. As e-commerce users demand more from vendors and expect products delivered within days, Hong Kong is perfectly placed to meet stakeholder needs.
The 2018 Global Competitiveness Report from the World Economic Forum ranked Hong Kong’s port infrastructure the best in the world. Its port runs 330 container vessels per week, serving 470 global destinations. Carrie Lam’s government has also outlined plans to increase capacity that would see the construction of additional yard space and barge berths at the Kwai Tsing Container Terminals.
Hong Kong’s airport has taken the boom of Chinese e-commerce in its stride. The city’s international airport has been the world’s busiest cargo airport since 2010. In 2017, Hong Kong’s cargo and airmail tonnage topped five million tons, the first airport to clear this milestone.
The city’s air cargo capabilities are only set to increase. The Airport Authority Hong Kong awarded a tender to a joint venture headed by Cainiao Network to build and manage a new US$1.5 billion premium logistics centre. The centre, due for completion in 2023, will add an additional 380,000 square metres of warehousing floor to the airport’s South Cargo Precinct.
Forward-thinking government policies are ushering in the e-commerce age
Hong Kong’s government, by its own admission, has stepped into the role of an e-commerce “facilitator” or “promotor”. Its 2019/2020 budget included plans to set aside HK$1 billion (US$130 million) for an Export Marketing and Industrial Organisation Support Fund to assist small and medium enterprises (SMEs) in their export promotion activities.
The city also has a favourable tax structure. Businesses that generate less than HK$2 million (US$255,000) pay just 8.25% of corporate profits in tax. Profits above HK$2 million are taxed at a rate of 16.5%.
Hong Kong’s government does not impose a sales tax or value-added tax (VAT), nor does it levy any capital gains taxes.
Under the ‘one country, two systems’ mantra, Hong Kong retains its unfettered access to the Chinese market, while enjoying the freedom to set its own business agenda. This has allowed Hong Kong’s government to pursue business-friendly policies, including avoiding foreign ownership restrictions, the implementation of intellectual property protections and the preservation of free movement of capital and talent.
Hong Kong’s domestic e-commerce market is also expanding
E-commerce vendors in Hong Kong are also able to leverage a highly connected domestic market. 89% of Hong Kong’s 7.4 million people went online in 2019, and 96% of the population has access to a smartphone.
The increased importance of e-commerce and online shopping in resident’s lives is most visible in the city’s advertising trends. Hong Kong’s digital advertising overtook television ad spending in 2014 and is growing by more than 10% annually.
As the digital sphere becomes the new retail battleground, e-commerce providers are turning to digital marketers to generate traffic and a digital marketing agency like Get Clicks that specialises in traffic and lead generation thanks to tailored media advertising solutions. Brands are also looking to key opinion leaders (KOLs) to promote their products on their social media networks to boost e-commerce sales.
Regional development will unlock new market opportunities
ASEAN’s middle class is projected to more than double in size by 2030. With its strong transport links to the region, Hong Kong stands poised to cash in on ASEAN’s emerging consumer class.
Charles Brewer, chief executive of DHL eCommerce, expressed his optimism for the future of Hong Kong’s e-commerce. “We see a huge opportunity for China e-commerce exports particularly to popular markets such as the UK and U.S. but increasingly also to emerging markets such as Southeast Asia, India and Latin America,” he said.
Hong Kong’s emergence as an e-commerce nexus is the result of a highly efficient logistics sector, complemented by carefully crafted business-friendly government policy. Its geographical location has no doubt been a boon, but to attribute the city’s e-commerce prowess to geographical good fortune ignores the deliberate cultivation of a pro-business, pro-digital commerce environment—an environment that will handsomely reward Hong Kong’s e-commerce vendors in the coming years and decades.
