There’s no doubt that China is one of the most promising new territories for international licensing players. And with the implementation of the CEPA free trade agreement between Hong Kong and the Chinese Mainland this year – coupled with impending events like the opening of Hong Kong Disneyland in 2005, the Beijing Olympics in 2008 and the 2010 World Expo in Shanghai – the Chinese licensing market is projected to grow from US$600 million in 2001 to more than US$1.5 billion by 2010.

Drawn to this rapid rate of maturation, Western companies want in, and the Hong Kong Trade Development Council is pushing hard to make its city the hub of choice for expansion efforts. The org recently hosted its third annual Hong Kong Licensing Show, and attendance this year was up by 100%, with more than 15,000 participants from 83 regions hitting the July event.

According to an on-site survey conducted by ACNielsen, the TDC’s goal of drawing more licensing business to Hong Kong is within reach. Polling 30 exhibitors and 213 visitors, 87% of the study’s respondents plan to make a move into Hong Kong or Mainland China in the next year. Topping the list of Hong Kong’s most appealing attributes are its strong market sensitivity, good worldwide distribution network, access to manufacturers and clustering of licensors and agents.

More than half of the survey participants claimed to be looking for Hong Kong-based licensing agents and licensees, and they pointed to toys/games, apparel/accessories, stationery/gifts and premiums as the Chinese manufacturing industries showing the most licensing promise for the next three years.

Complications centering around piracy, industry expertise, regional disparity, language barriers and the country’s confusing retail landscape have traditionally scared some players away from China. But many Hong Kong companies have proactively overcome some of these roadblocks, hoping to increase their appeal to foreign partners.

The Roly Group, an Asian distributor whose clients include Disney, Mattel and United Media, has a solid understanding of how product rollouts must be structured in China’s uneven, tiered retail market. The company’s executive director Jacob Lin advocates starting small in one of China’s three top-tier cities (Shanghai, Beijing or Guangdong), which have the highest concentration of higher-end retail outlets such as department stores, supermarkets and hypermarkets. Going up-market is almost always necessary for foreign brands since manufacturing costs tend to push these products into a higher price bracket than can be supported at mass.

Because the cost of advertising is sky-high in China, in-store presence is crucial to success as it’s often the best and/or only way to communicate one’s brand to consumers. So Roly works to establish store-in-stores and branded boutique concepts on behalf of its clients.

Even though China’s manufacturing base may still indulge a bit too liberally in label-slapping, there are definite glimmers of innovation that could be tapped by licensors with kids character properties. Two companies that stood out at the Hong Kong Licensing Show are Lee Hing Plastics and Double Trading. The former’s 3D Sand line of sand-sculpting kits would create a whole new kind of kid impact if they constructed sand-characters instead of generic shapes. And similarly, Double Trading’s nail coloring device would clean up in the accessories category if girls could adorn their fingertips with Hello Kitty or one of the Powerpuff Girls instead of flowers and rainbows.

On the language front, given that Hong Kong is a former British colony, its business community is fluent in English as well as Putongua (Mandarin), China’s official language. And the region also has well-established trademark and copyright laws, some of which date as far back as the late 1800s. Working with the police to enforce these laws on behalf of IP owners who’ve fallen prey to piracy are companies like International Risk. Headed up by former triad buster Steve Vickers, the business intelligence firm tracks down and breaks up piracy rings in China, among other services.