29 Oct 2015
Bohai "Going Out" Case Studies (5): Hong Kong Services to Support Mainland’s Commodity Plantation
A number of mainland businesses are now engaged in bulk commodity plantation and processing activities, looking to supply both the domestic and overseas markets. As well as financing issues, a number of these enterprises suffer from a lack of professional services support when undertaking overseas projects. As the financial services centre for the Asia Pacific region, Hong Kong can facilitate the “venturing out” initiatives of many mainland enterprises by providing financial services, as well as a full range of insurance, investment investigation and risk assessment benefits. The city can also act as a service platform for the overseas investments of mainland enterprises.
Venturing Out to Meet Asia’s Palm Oil Needs
HKTDC Research recently visited the Tianjin Julong Group, China’s leading palm oil producer and distributor. From the visit, it was learned that the group’s Hong Kong-registered subsidiary is staffed with mainland personnel who have the responsibility for financing and taxation matters with regard to international trade and overseas investments.
At present, the company’s integrated palm oil production chain businesses encompass oil-bearing crops plantation, the trading of oil-processing foodstuffs and edible oils, R&D related to fats and oil products, as well as financial services for the foodstuffs and edible oils industry. The group also owns China’s largest-capacity integrated oils and fats processing base, located in the bonded area of the Tianjin Port. Additionally, it has set up mass production bases in Jingjiang in Jiangsu province, and in Dongguan in Guangdong.
To cope with the mainland’s massive demand for edible oils, Julong has invested in palm oil plantations in Indonesia and in palm oil crushing processing plants. The group now hopes to invest in additional palm oil plantations in other Southeast Asian countries, notably Indonesia and Malaysia. It is also seeking to strengthen its marketing and R&D efforts with regard to packaged palm oils, while expanding its Southeast Asian and African markets.
Hong Kong: Helping Protect Overseas Investments
According to the company, its palm oil plantation investments necessarily require involvement in land ownership, as well as transactions in land use rights, along with the recruitment of the overseas labour required for plantation and processing production. Any change in the investment territory’s political environment can thus incur additional risk for the group’s investments. Similarly, changes in the international commodities market can also have a considerable impact on bulk commodity sales, thereby providing further uncertainties for the group’s businesses.
In light of this, Julong has a clear need for financial and professional support services in order to help it identify low-cost investment financing channels and evaluate the business development sustainability of its projects, while also keeping its investment risks under reasonable control. At present, the company believes the mainland’s own financial and professional services still have some way to develop before they reach the required level.
Currently, Julong sees it itself as having comparatively few choices available in terms of appropriate support services, making difficult for it to comprehensively protect its overseas investments. Mainland insurance companies, for instance, provide relatively few options for export or international trade services and products.
Due to its expanded business scope, Julong has occasion to seek guarantees and collateral in order to secure low-cost capital financing, while also having to undertake financial and market risk assessments for its overseas investments. As the financial services centre for the region, Hong Kong is more than capable of providing these professional services, while also providing an ideal platform for the group’s further overseas expansion.