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Hong Kong and Taiwan's Alignment Boosted by Joint Economic Priorities

The importance attached to the Belt and Road Initiative and the New South-bound Policy has given new impetus to the commercial ties between Taiwan and Hong Kong, with their complementary nature set to see the connection deepen.

Photo: Focussing on emerging joint opportunities: The 2016 Hong Kong-Taiwan Economic Co-operation Forum.
Focussing on emerging joint opportunities: The 2016 Hong Kong-Taiwan Economic Co-operation Forum.
Photo: Focussing on emerging joint opportunities: The 2016 Hong Kong-Taiwan Economic Co-operation Forum.
Focussing on emerging joint opportunities: The 2016 Hong Kong-Taiwan Economic Co-operation Forum.

With both mainland China's Belt and Road Initiative (BRI) and Taiwan's New South-bound Policy representing a renewed focus on the emerging Southeast Asian countries and the surging Indian economy, there are clear opportunities for Hong Kong to play a key role in both programmes. In particular, there is considerable synergy between Taiwan's manufacturing industries and Hong Kong's service sector.

There has long been a degree of cooperation between Hong Kong's business community and its counterpart across the Straits. According to the most recently-available figures fromthe Hong Kong Economic, Trade and Cultural Office, as of June 2016, Taiwan maintained 25 regional headquarters, 115 regional offices and 247 local offices in Hong Kong.

For its part, Hong Kong is well-represented in a number of service sectors across Taiwan,including retail, logistics and finance. This has seen a number of Hong Kong's leading businesses – notably the Swire Group, Li & Fung, Watson's, the Hang Seng Bank and the Bank of East Asia – maintaining operations in Taiwan, while Kerry TJ Logistics (a subsidiary of the Kwai Chung-based Kerry Group) is one of the territory's largest logistics players. As a sign of the significance of the Taiwanese market, the Hong Kong Trade Development Council (HKTDC) also has a dedicated office operating out of Taipei's central business and government district.

Looking to the future, many see distinct benefits arising from Taiwan and Hong Kong working together to develop regional trade. Ever since Tsai Ing-wen, Taiwan's President, took office in May 2016, the New South-bound Policy has been at the top of her administration's agenda, seeing it actively encouraging Taiwanese businesses to expand into new markets across Southeast Asia and India.

Overall, though, compared with Taiwan, Hong Kong's highly internationalised status is seen as giving it a better understanding of Southeast Asia and India. In this regard, Hong Kong's service sector is ideally positioned to provide Taiwanese companies with considerable assistance with regard to financial issues, legal affairs and human resources when it comes to accessing these markets. Such co-operation between these two Asian commercial strongholds is, of course, nothing new.

It was in the 1960s that Taiwan started the process of transitioning from being a largely agricultural society to one with a more industrial base. Faced with limited domestic demand, it adopted an export-oriented approach, specialising in the OEM sector. This saw it develop expertise across several industries, including textiles, shoemaking, light machinery and petrochemicals.

Back in the 1970s, when the political situation across East Asia normalised, economic development in the region began to advance by leaps and bounds, much of it driven by the informal sponsorship of the US. Given their strategic positioning at the very heart of this region, it was not surprising that both Taiwan and Hong Kong embarked on a period of accelerated growth. With two of the region's other fast-paced economies – Singapore and South Korea – enjoying similarly robust development, they soon came to be collectively known as Asia's Four Little Dragons.

The rising cost of land and labour in the 1980s led to many of Taiwan's traditional labour-intensive industries being relocated to mainland China. It was also at this time that Taiwan entered a new phase of industrial transformation and upgrading, with a government-backed science park – specialising in the IT sector – opening in the north of the territory. This was soon followed by additional science parks, including sites in Taichung and Tainan. Its early commitment to the burgeoning IT sector saw Taiwan quickly established as a key global high-tech manufacturing centre.

It was during this time, with many Taiwanese companies keen to invest on the mainland, that Hong Kong came to play a key role as the middle man between the two. As a result, Hong Kong became the default transit point for any Taiwanese businessmen travelling to the mainland, as well as for more informal tourism and family visit purposes. Ultimately, this saw the city come to function as the most significant transit port for indirect cross-strait trade.

In the 1990s, mainland China stepped up its own reform and opening-up programme, with its economy soon enjoying unprecedented growth. Within 20 years, it had become the world's second-largest economy, jostling with the US for the top spot. This saw the mainland emerge as the primary engine for growth across the wider region, largely on account of its vast pool of cheap labour and huge domestic market.

Buoyed by the mainland's success, the rapid economic development of both Taiwan and Hong Kong continued well into the 1990s, with the two also managing to weather the twin storms of the 1997-98 Asian financial crisis and the global downturn of 2008. After nearly 50 years of economic restructuring, the two have now established a commercial relationship that is more co-operative than competitive. Economic and trade co-operation is expected to further strengthen in the foreseeable future following greater regional economic integration across East Asia.

Among the Four Little Dragons, Taiwan's industrial development model is closest to that of South Korea, with both having primarily export-oriented economies. As such, the two have long been seen as competitors rather than as potential partners. In the case of Hong Kong, though, its development has seen it positioned quite differently.

Unlike Taiwan and South Korea, with their largely industrial economies, Hong Kong's relatively small geographic size has made it unsuitable for the development of a long-term and substantial manufacturing base. Although it was once home to a number of traditional industries, notably textiles and shoemaking, by the 1980s, most of its manufacturing facilities had been relocated to China's Pearl River Delta region.

While Taiwan was implementing its industrial upgrade, Hong Kong was concentrating more on nurturing its service sector. Ultimately, this saw it emerge as one of Asia's most important international financial centres, one with a hugely busy free port. It is these developments, together with its compliance with international legal norms, conducive tax environment and geographical advantages, that have been the cornerstones of Hong Kong's 21st-century success.

Even after 2008, when Taiwan and mainland China initiated direct air and sea transport connections, as well as a regular postal service (the so-called "three direct links"), Hong Kong maintained its intermediary role in cross-strait affairs. Indeed, according to figures published by Taiwan's Bureau of Foreign Trade, the total volume of trade between Taiwan and Hong Kong showed an annual growth of 3% for the four years following 2012, with this reaching an 8% high in 2016. This saw Hong Kong established as Taiwan's fourth-largest trading partner and its second-largest export market.

Photo: The Taiwan corner at the Hong Kong Book Fair.
The Taiwan corner at the Hong Kong Book Fair.
Photo: The Taiwan corner at the Hong Kong Book Fair.
The Taiwan corner at the Hong Kong Book Fair.
Photo: The Hong Kong Business Association in Taiwan.
The Hong Kong Business Association in Taiwan.
Photo: The Hong Kong Business Association in Taiwan.
The Hong Kong Business Association in Taiwan.

Between 2012 and 2016, cross-strait transshipments via Hong Kong enjoyed an average growth of 6.6%. For 2016, year-on-year growth was 9.7%, with total trade valued at US$40 billion, a sure sign of the robust and containing commercial relationship between the two territories.

Back in 2014, in order to promote joint Hong Kong-Taiwan business and provide companies in both territories with the latest information on investment and business opportunities, the HKTDC's Taipei Office played a key role in establishing the Hong Kong Business Association in Taiwan. With Richard Shen, Chairman of Kerry TJ Logistics, also acting as its Chairman, the association now has some 100 members.

Robert Kang, Special Correspondent, Taipei

Content provided by Picture: HKTDC Research
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