9 Jan 2018
New Era of Economic Cooperation
When Chinese President Xi Jinping outlined ambitious plans to transform China's economic base by 2050 at this year's National Party Congress in Beijing, his words held particular significance for many businesses operating in Hong Kong and Taiwan, with both economies potential beneficiaries of the mainland's expansive new era.
With the implementation of the Belt and Road Initiative designated as the country's number-one priority, and Taiwan’s New Southbound Policy – the island's blueprint for its own economic development – accorded similar status, many see cooperation, rather than competition, as the way ahead, with Hong Kong potentially playing a key role in both developmental strategies.
Mr Xi outlined a two-stage development plan that would run from 2020 until about 2050. For the initial 2020-2035 phase, he emphasised the need for the country to build on its existing economic and technological strengths as it looked to become a global leader renowned for its innovative capabilities.
Phase two, which he envisaged running from 2035 to about 2050, is seen as a period of national consolidation, with a focus on the country emerging strong on the domestic front, while taking on a heightened international role.
Mr Xi renewed calls for the country to address five critical issues that threaten economic development: overcapacity, excess inventory, deleveraging, cost reduction, and weak links in the overall production chain. In a similar vein, he highlighted the importance of improving resource allocation and maintaining quality, while striking the right balance between supply and demand.
Digital Era Industries
On the industrial front, Mr Xi emphasised the importance of the advanced manufacturing sector and the need to fully integrate digital connectivity, big data and artificial intelligence with the needs of the wider economy. Only through such cross-fertilisation, he said, could the full potential of several emerging sectors be fully realised, including green/low-carbon production and the sharing economy, while a number of existing resources – most notably supply chain management and staff recruitment/development – could be successfully upgraded to meet the challenges of the digital era.
For many Taiwanese businesses focused on advanced manufacturing, Mr Xi's words had particular relevance. In recent years, as the mainland's production base evolved in line with the aims of Made in China 2025 – the country's 10-year plan to embrace the opportunities offered by intelligent manufacturing – the nature of its commercial interaction with Taiwan has also undergone fundamental change. While the relationship was once characterised by low-tech Taiwanese production being outsourced to the mainland, it has now shifted to a more horizontal alliance, with technological exchanges now commonplace on both sides of the Taiwan Strait – a development set to become more pronounced as Mr Xi's economic blueprint comes to fruition.
Hong Kong Financial Expertise
Mr Xi also outlined ambitious plans for the financial sector, an area where Hong Kong has globally acknowledged expertise. In particular, Mr Xi signalled his commitment to further reforms of the overall financial system, while seeking to enhance the capabilities of the financial-services sector, raise the proportion of direct financing, and promote the development of a multi-level capital market. At the same time, he also pledged support for improving the dual-pillar monetary and macro-prudential policy regulatory framework, as well as indicated a need for further reforms to the interest-rate market and improvements to the financial supervision system. Overall, he reminded delegates of the paramount importance of avoiding systemic financial risks.
Mr Xi's emphasis on market supervision and risk control within the mainland financial sector poses opportunities for Hong Kong. While many financial institutions in Shanghai or Beijing, for instance, will be obliged to take a slow and steady approach to market liberalisation, Hong Kong, which is perfectly positioned to act as an intermediary for mainland businesses considering overseas expansion, can move at a more accelerated pace, confirming its status as among the world's leading financial centres.
Going Out, Bringing In
Another priority highlighted by Mr Xi was the need for mainland enterprises to both expand abroad and transfer skills and technology back to the country's manufacturing base; the so-called "going out" and "bringing in" doctrines. These policies were given greater import in light of both Mr Xi's commitment to the Belt and Road Initiative and the accelerated free-trade pilot-zone programme currently underway at 11 key locations across China.
Since the Initiative was announced in 2013, Hong Kong has played a key role in making this grand vision of international infrastructure development and trade facilitation a practical reality. In particular, its globally renowned professional services base – especially with regard to finance, legal compliance and risk analysis – has been at the forefront of many of the complex negotiations that have paved the way for the Initiative's most ambitious construction projects. With the Belt and Road Initiative remaining the centrepiece of China's long-term economic development programme, Hong Kong is guaranteed a seat at the top table when it comes to delivering the Initiative's wide-reaching objectives.
Taiwan’s new Southbound Policy has clear synergy with the Initiative. While the mainland's infrastructure-development programme rolls out across a wide number of territories, many of them are also targetted by Taiwan. The mainland initiative is focused on financing/managing major infrastructure projects, while negotiating streamlined bilateral trade terms. In contrast, Taiwan is looking to encourage its manufacturers to directly invest in such countries, with the aim of nurturing the production capabilities of many of these underdeveloped nations.
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