India-Hong Kong trade affected by China bogey

Hong Kong is assiduously wooing India to step up trade with the country, but the China bogey may come in the way of trade relations between the two, fear businessmen in the ‘Fragrant Harbour’.

“We have been lobbying with the Indian government to consider Hong Kong and China as separate. But instead we are now getting linked more and more and the restrictions applied to Chinese companies are now applying to Hong Kong companies too,” says Raj Sital, chairman of The Indian Chamber of Commerce Hong Kong. The Chamber has over 600 corporate members.

According to him, Hong Kong is the superconnector that ties China with the rest of the world, including India. But the glue is now coming a bit unstuck as far as India is concerned due to India’s security concerns about China.

Pain points

Earlier this year, in February, C Y Leung, Chief executive of the Hong Kong Special Administrative Region had led a business delegation to India to discuss bilateral trade and iron out the sticky issues. “Three areas where we have problems were discussed,” says MH Arunachalam, immediate past chairman of the Indian Chamber of Commerce Hong Kong, who was part of the 200-member delegation. The pain points are a comprehensive double taxation avoidance agreement (DTAA) that has been in discussions for over a decade and is yet to be signed.

The second is the fact that now Hong Kong based companies cannot open offices – even representative offices - in India automatically and directly, but need prior permission from the RBI, a process that sometimes can take over a year. “The way we were doing business with India has fundamentally changed, with more layers added,” says Sital.

The third concern is that Hong Kong citizens cannot now buy property in India without prior permission. “Even properties that were purchased earlier, if we sell today, we cannot repatriate the money without prior permission,” says Arunachalam describing how it affects the 50,000-strong Indian community in Hong Kong that has real estate investments in India.

One country, two systems

“India needs to recognise that Hong Kong and China may be one country, but we are actually two systems,” says Sital referring to the 50-year agreement that was signed when the British handed over Hong Kong to China in 1997.

Ironically, India has a double taxation treaty with China, points out Sital. The Indian government’s response to the entreaties of the Hong Kong delegation has been that “it’s a sensitive issue”.

For Hong Kong, the India push is important as its exports were down by 3 per cent in 2015. “At a time when Hong Kong’s exports are down we have to look at the three markets that show promising growth and India is one of them,” says Nicholas Kwan, Director of Research, Hong Kong Trade Development Council (HKTDC). In 2015, Hong Kong’s exports to India expanded by 8.1 per cent to touch US$13 billion. India is the fourth largest export market for Hong Kong.

Major export items from Hong Kong to India are telecom equipment and parts which saw a jump of over 32 per cent from the previous year to US$5,129 million and accounts for 39.3 per cent share of its total exports to India.

(The writer was in Hong Kong at the invitation of the HKTDC)

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