28 June 2016
Hong Kong Regains Competitiveness Crown
Hong Kong has been crowned the world’s most competitive economy, unseating the three-year incumbent United States, according to the Institute for Management Development (IMD) World Competitiveness Center, a research group of Swiss-based IMD business school. Professor Arturo Bris, the Centre’s Director, said Hong Kong’s resilience to the Chinese mainland’s slowdown had got it over the line this year. Hong Kong wrested the competitiveness title from the world’s-largest economy while bucking the trend of an overall regional decline.
Despite Hong Kong being the Asian economy most dependent politically on the mainland, “it has been the most resilient to the growth problems and volatility issues in the Chinese mainland this year,” said Professor Bris. “I think that the city’s monetary and fiscal policies, the diversification of the economy, that it is not a manufacturing country and that, in fact, it is a small economy, all play a role in isolating Hong Kong from the crises in Asia.”
The IMD World Competitiveness Center has published the ranking each year since 1989. Widely regarded as a leading global assessment, it benchmarks the performance of 61 economies based on more than 340 criteria measuring different facets of competitiveness.
Responses from an in-depth survey of more than 5,400 business executives, who are asked to assess the situation in their own economies, were also taken into consideration to determine the overall rankings.
The IMD’s World Competitiveness Yearbook 2016, published last month, ranks Hong Kong first, followed by Switzerland and the US, with Singapore, Sweden, Denmark, Ireland, the Netherlands, Norway and Canada completing the top 10.
Professor Bris said a consistent commitment to a favourable business environment was central to Hong Kong’s steady rise in the ranking from second place in 2015, and fourth in 2014.
“The US still boasts the best economic performance in the world, but there are many other factors that we take into account when assessing competitiveness,” he said. The “common pattern” among all of the countries in the top 20, Professor Bris added, is their focus on business-friendly regulation, physical and intangible infrastructure and inclusive institutions.
A leading banking and financial centre, Hong Kong encourages innovation through low and simple taxation and imposes no restrictions on capital flows into or out of the city, the report noted. “It also offers a gateway for foreign direct investment in the Chinese mainland, the world’s newest economic superpower, and enables businesses there to access global capital markets,” the researchers found.
Professor Bris said the ranking makes clear year after year that current economic growth is no guarantee of an economy’s future competitiveness. “Nations as different as mainland China and Qatar fare very well in terms of economic performance, but they remain weak in other pillars, such as government efficiency and infrastructure,” he explained.
Apart from Hong Kong and Singapore, he added, the research suggests that Asia’s competitiveness has declined markedly overall since the publication of last year’s ranking. Taiwan, Malaysia, South Korea and Indonesia have all suffered significant falls from their 2015 positions, while the mainland declined only narrowly, retaining its place in the top 25.
On the other hand, Professor Bris paid tribute to Hong Kong’s business-friendly regulatory system. “The role of the government is to facilitate enterprising, job creation by the private sector and innovation,” he said. “A good regulation is one that does not interfere much with the private sector and provides a legal infrastructure that reduces uncertainties and favours competition.”
He also cited Hong Kong’s key role as gateway to the mainland. While Hong Kong “certainly” has an unrivalled edge in terms of regional competitiveness, “it is also true that Hong Kong, unlike Taiwan and South Korea, for instance, has proactively executed this strategy of becoming the finance provider for mainland China.”
To conclude, Professor Bris observed: “You have two choices as a country – either the public sector takes the initiative in pulling the private sector [Singapore], or else you provide the conditions for the private sector to lead the competitiveness of the country [Hong Kong and US].”
In its latest assessment, global credit insurer Coface, also cited Hong Kong’s adaptability. “Despite the Chinese economic slowdown, Hong Kong's growth proved resilient in 2015 because of robust domestic demand,” states the Coface 2016 report on major macro-economic indicators.” It forecasts that activity may be hit this year by the US Federal Reserve's gradual hike in key rates and slowing mainland consumption, but finds that growth in financial services “is expected to remain dynamic,” as the city is an entry point for Asian capital.
Hong Kong has also been commended for recent business reforms in the World Bank Group’s 2016 Ease of Doing Business index. Starting a business is easier now that the requirement for a company seal has been eliminated, the report found. By implementing a modern collateral registry, Hong Kong companies have also gained improved credit access.
Building on Advantages
In a recent (April 2016) statement, HSBC Holdings Group Chief Executive Stuart Gulliver highlighted three areas in which Hong Kong can further raise its global competitiveness and build on existing advantages.
Top of his list is the potential of the Belt and Road Initiative, which Mr Gulliver describes as “a priceless opportunity that will considerably strengthen Hong Kong’s standing as an international financial centre.”
He also cited the internationalisation of the renminbi. Hong Kong is “the undisputed centre of the offshore renminbi market,” with more than more than Rmb1 trillion in deposits, and about Rmb900 trillion in liquidity, Mr Gulliver wrote in the Voice of Hong Kong, an online opinion platform, and this status “will only grow more secure as international use of the renminbi accelerates, driven in no small part by the roll-out of projects under the Belt and Road.”
The third pillar, in Mr Gulliver’s view, is Hong Kong’s capacity to meet the changing nature of trade, sparked by new technology and changing consumer patterns.
“There will also be forces that we cannot yet fully anticipate, but which investment in an agile and flexible economy can equip Hong Kong to handle, as it has so many times in the past. The focus on innovation, research and development, and the creative industries [introduced in the current Budget] was a welcome sign that the administration understands this need.”
Welcoming the IMD assessment, Hong Kong Financial Secretary John Tsang said that Hong Kong remains committed to fostering a favourable business environment, adding that, in light of fierce competition in the global arena, “Hong Kong will strive to uphold its prevailing competitive edge and continue to search for new growth areas to strengthen its position as an international financial, trading and business centre, and enhance its long-term competitiveness.”