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Hong Kong’s Cross-strait Link

The 2016 Hong Kong-Taiwan Economic Co-operation Forum
Focusing on emerging joint opportunities: Chairman of the Hong Kong-Taipei Association Ng Wing-ka speaks at the Hong Kong-Taiwan Business Cooperation Committee Meeting

With the Chinese mainland’s Belt and Road Initiative 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 services sector.

There has long been a degree of cooperation between Hong Kong's business community and its counterpart across the Taiwan Strait. According to the most recently-available figures from the 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.

The Hong Kong Business Association in Taiwan
The Hong Kong Business Association in Taiwan

For its part, Hong Kong is well-represented in a number of services 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 city'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. To promote joint Hong Kong-Taiwan business and provide companies in both economies 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, as Chairman, the association now has some 100 members.

South-bound Policy

The Taiwan corner at the Hong Kong Book Fair
The Taiwan corner at the Hong Kong Book Fair

Looking to the future, many see distinct benefits arising from Taiwan and Hong Kong working together to develop regional trade. Since Taiwan President Tsai Ing-wen 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.

Compared with Taiwan, Hong Kong's highly international status gives it a better understanding of Southeast Asia and India. In this regard, Hong Kong's services sector is ideally positioned to provide Taiwanese companies with considerable assistance in accessing these markets, particularly with regard to financial issues, legal affairs and human resources. Cooperation between these two economies goes back decades.

Asian Dragons

During the 1960s, Taiwan began transitioning from a largely agricultural society to a more industrial economy. 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.

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 United States. Given their strategic positioning at the heart of this region, 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 the mainland. Taiwan also entered a new phase of industrial transformation and upgrading, with a government-backed IT science park opening in the north. This was soon followed by additional science parks, including sites in the central city of Taichung and Tainan in the south. Its early commitment to the burgeoning IT sector saw Taiwan quickly become a key global high-tech manufacturing centre.

During this time, many Taiwanese companies were keen to invest in the mainland, and Hong Kong came to play a key role as the middle man by becoming the default transit point for 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, the mainland 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, Hong Kong and Taiwan’s rapid economic development continued well into the 1990s, with both weathering the twin storms of the 1997-1998 Asian financial crisis and the 2008 global economic downturn. After nearly 50 years of economic restructuring, the two have now established a commercial relationship that is more cooperative than competitive. Economic and trade cooperation is expected to further strengthen in the foreseeable future following greater regional economic integration across East Asia.

Complementary Ties

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 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 several 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 on nurturing its service sector, ultimately emerging as one of Asia's most important international financial centres, with a hugely busy free port. These developments, together with its compliance with international legal norms, conducive tax environment and geographical advantages, have been the cornerstones of Hong Kong's 21st century success.

Even after 2008, when Taiwan and the mainland 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 three per cent for the four years following 2012, reaching a high of eight per cent in 2016. This saw Hong Kong established as Taiwan's fourth-largest trading partner and its second-largest export market.

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

For more China market opportunities, please visit: http://research.hktdc.com

Content provided by Hong Kong Trade Development Council
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