China’s ever-growing electric vehicle industry is setting up shop in Hong Kong, but not to expand business in the minuscule Hong Kong market. Rather, they are looking to leverage the city’s financial system for global expansion, Bloomberg reports.
What gives Hong Kong a unique position is its attractive financial sector compared to mainland China. Hong Kong enjoys free trade and the world’s largest yuan market, and its banks can help Chinese EV companies in ways that mainland banks aren’t able to, Xu Haidong, deputy chief engineer of the China Association of Automobile Manufacturers (CAAM), told Bloomberg.
“China’s big four banks aren’t yet able to directly support the needs of our automakers overseas, including for consumer auto loans, fundraising by dealerships or foreign direct investment to build factories,” Xu said, according to Bloomberg. “Chinese carmakers have arrived at the stage of expanding internationally, and this needs financial support. Hong Kong is a good starting point.”
Foreign exchange controls in China prevent money from moving freely in and out of the country, so businesses dealing with foreign capital face heavy restrictions and intense scrutiny from the government, the report added. On the other hand, Hong Kong, which enjoys some autonomy as a Chinese-controlled Special Administrative Region, has low tax rates with only limited government interference.
So far, China’s Contemporary Amperex Technology Co., the world’s largest battery manufacturer, said it plans to open its international headquarters in Hong Kong, spending HK$1.2 billion ($154 million) to make it happen and hiring 500 employees. Other companies include all-electric auto brand Hozon New Energy Automobile Co. and Black Sesame Technologies, among others. Chinese EV-related companies have pledged HK$8.6 billion ($1.1 billion) in investments and the hiring of 1,300 workers, Bloomberg writes.
This is certainly good news for the city, which took a hit from heavy COVID-19 restrictions and China’s economic slowdown, with a lot of companies reducing staff and sparking an exodus of talent out of the city.
The Hong Kong Stock Exchange already hosts BYD and Geely, and CATL and Hozon are also mulling over going public via the Hong Kong Stock Exchange, which is considered both less restrictive and considerably less conservative than the Shanghai exchange.
For Chinese companies to expand, they will certainly need to set up locations outside of China – that is clear – and Hong Kong seems like a smart move. Meanwhile, BYD is pushing international growth with its plans to build an EV factory in Hungary, and other automakers are looking to set up production in Europe as well. Chinese companies MG, BYD, and Chery have also been scouting sites in Mexico and talking to officials for better access to the North American market, according to the Financial Times. MG is planning to build a $2 billion factory, while BYD is ramping up investments worth hundreds of millions for its own factory – actions which have set off alarm bells in Washington over trade war concerns with China.
An interesting aside, Hong Kong, being a former British colony, is the first market for Chinese automakers to launch right-hand drive models. Zeekr, owned by Geely, and XPeng are planning to bring their first right-hand drive vehicles to Hong Kong. Other emerging EV markets such as Indonesia, Malaysia, and Thailand also use right-hand drive, which puts Hong Kong in a good spot to reach these markets as well.
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