5 Aug 2015
“The Belt and Road” and Hong Kong’s Economic Transformation and Challenges
To Hong Kong, the Belt and Road initiative is in one way a cause for joy, but in another, a matter of concern. The reason for rejoicing is that business opportunities brought about by the initiative may allow Hong Kong a chance to embark on a whole new course of development. The reason for concern is that the epochal changes that may be triggered off by the initiative may further marginalise Hong Kong. Yet nothing is absolute in the affairs of the world; whether it is a cause for joy or a matter of concern is not predestined. From past records, I believe it is more likely joy than concern; but the key is to grasp and respond to situations flexibly.
Capitalise on strengths by leveraging geographic and sector advantages
The notion of marginalisation is not a new one: as early as the 1980s when the local manufacturing sector relocated northwards en masse, there were already worries about a “hollowing out of industries”. Later, as the mainland opened up, intermediary sectors such as trading and logistics had also been under the threat of “dis-intermediation”. It turned out that old and outdated industries were “hollowed out” in no time, while related but higher value added industries in business services such as design, finance and marketing emerged quickly. Of course, in the process of conversion there was much suffering, but being such a tiny place, if Hong Kong had not changed with time, the outcome would have been much worse.
At first glance, the Belt and Road initiative presents Hong Kong with two predicaments. The first is geography: along the Belt and the Road are many regions such as Central Asia, Western Asia and Central and Eastern Europe, with which Hong Kong does not have strong ties. The second is industry sectors: high-speed rails, resources development, mining and metallurgy do not play into the strengths of Hong Kong.
The key in turning these predicaments into opportunities lies with responding flexibly to situations, capitalising on strengths and avoiding weaknesses. In terms of geography, Hong Kong should focus on regions with which it has stronger economic and business ties, such as Southeast Asia, South Asia and the Middle East. Particular attention should be paid to countries such as India, Indonesia, Vietnam and hub cities like Dubai, which are either among Hong Kong’s top export destinations or ones with great potential. There is a need to tighten ties with relevant countries; to participate actively and enter into bilateral and multi-lateral economic, trade and taxation agreements; and to intensify our promotion efforts and encourage multi-level exchanges and training. For regions such as Central and Western Asia and Central and Eastern Europe, to better build a strong foundation for more extensive economic and trade exchanges we should concentrate on developing official and civilian exchange channels and facilitate tourism, trade and investment by improving convenience in visa granting, transportation, customs clearance, certification and tax matters.
In terms of industry sectors, we should provide support to the Belt and Road initiative by leveraging our advantages as a service centre along the Belt and Road routes that are most internationalised and most familiar with Chinese matters. We should zero in on four sectors in particular:
- Finance: Including raising funds, financing, foreign exchange, insurance, treasury and risk management, and renminbi internationalisation.
- Shipping and logistics: Including regional distribution, intermodal transportation and value chain management.
- Business and trade promotion: Including conventions and exhibitions, business matching, quality inspection, design, property right transactions and brand management.
- Cross-border investments: Including services such as helping the “going out” of Chinese enterprises through mergers and acquisitions, as well as legal, arbitration and regional headquarters related services.
Market-oriented and Global Approach
In addition to the above-mentioned regional and sector focuses, Hong Kong also has two roles in the development of the Belt and Road initiative that should not be ignored. The first is its grasp of international market rules, and the second is its connections to regions outside the Belt and the Road.
To a large extent, the success of the Belt and Road initiative depends on whether or not it can align organically to the long-term economic development needs of the countries along the Belt and Road routes and achieve mutual benefit. This requires giving maximum play to market functions and doing things according to economic needs and international practices. The Belt and Road initiative, however, involves a large number of infrastructure projects that require the planning and participation of public sectors. So how to integrate market planning with balancing the interests of public and private institutions would be the key to success. In Hong Kong, many infrastructure areas such as power, harbour, telecommunication, bridges, tunnels, railways and airports are invested or operated either by private companies, or through public-private partnership or statutory corporations. Many local examples of such infrastructure are run very efficiently and have attained a high level of international standards. They can serve as important references, and help with the development of Belt and Road infrastructure projects.
Another key factor to the success of the Belt and Road initiative is that it should eventually reach beyond the Belt and Road and evolve into a global development strategy that drives the new world economic order. This requires a super connector that can convey the message of the Belt and Road to places outside its realm, particularly to the main industrial centres of North America, Europe and Japan. With its extensive economic and trade connections in developed markets, Hong Kong fits squarely into this indispensable role and can contribute towards extending the Belt and Road concept to the whole world. This way, Hong Kong not only can leverage the strengths of the Belt and Road initiative to consolidate the advantages of its own pillar industries, expand into markets along the Belt and Road routes and accelerate its transformation and upgrading. It can also play a more important role in the new world economic order.
This article originally appeared in Hong Kong Economic Times (4 August, 2015)