HONG KONG: The city's role as an intermediary facilitating communication between the mainland and Taiwan might be waning as direct cross-Straits links have reopened, local business associations warn.

But their representatives say the city's specialty in financial services, as well as having sound and transparent legal systems, will help secure its foothold as a preferred finance hub to all enterprises in China.

Andy Lo, honorary chairman of the Taiwan Business Association in Hong Kong, said fewer Taiwanese companies in recent years have used Hong Kong solely as a bridge to do business on the mainland.

"Before 1997, there were several people coming to me every week, now I have one or two," he told China Daily in a phone interview.

Serving as a Hong Kong-based mentor to Taiwanese companies, Lo has witnessed the changes in Hong Kong's significance to the mainland expansion efforts by Taiwan companies during the past decade.

"Now that the (mainland) door is wide open, some electronics companies have even moved their headquarters to the mainland, since the facilities there are very well established," he said.

Taiwan's Hon Hai Group, the world's largest contract maker of electronics, relocated its manufacturing subsidiary, Foxconn, to the mainland in 2005 and then established a production base with a total workforce of 130,000 in Guangdong province.

And to meet the growing needs of an influx of businessmen from Taiwan hoping to bring their families with them to the mainland, primary schools using Taiwanese text books and teaching formats have also opened in Guangdong.

The renminbi's appreciation also results in Taiwanese companies converting their capital to the currency and transfering it to banks on the mainland, Lo said.

Statistics from the Taiwan Business Association in Hong Kong indicate that about 800 Taiwanese companies have offices in the city, which was once an important platform for capital transactions and business communications.

However, a survey conducted by Hong Kong's TDC (Trade and Development Council) indicated that most Taiwan companies won't uproot their presence in Hong Kong because of the "three-links" agreement.

A good majority of respondents said Hong Kong's low tax rate and sound financial market still serve these companies well in the management of their mainland investments, according to TDC.

Moreover, most Taiwanese companies don't think the cost of maintaining the offices is high, the council said.

Strong financial hub

Hong Kong's position as a preferred platform for fund raising and other financial services is expected to be replaced by Taipei or Shanghai.

"We understand that Taiwanese authorities want companies on the island to sell shares on the local stock exchange, but companies can easily top the international market and attract international investors if they issue shares in Hong Kong," Lo said.

Taiwan's top regulator, the Financial Supervisory Commission (FSC), aims to attract about 200 overseas-based Taiwanese firms to list on the local bourse within four years.

In return, Taiwanese authorities are hoping some of the earnings of these companies will help boost the domestic economy.

"Hong Kong is a very large financial center in the world," HSBC regional economist Fred Neumann said. "Hong Kong's position will remain competitive compared with Taiwan."

(HK Edition 02/25/2009 page16)