Hong Kong should find ways to get past challenges

By Zhang Jianping Source:Global Times Published: 2017/6/29 21:43:39

Illustration: Peter C. Espina/GT

When I traveled to Vietnam a few months ago, I was surprised to find that I could pay the bill using Chinese currency, the yuan, at a local seafood street restaurant. Compared with other currencies in Southeast Asian countries, the yuan has rapidly gained recognition in local markets given its steady value. The internationalization of the yuan will also bring tremendous opportunities for Hong Kong, the largest offshore yuan business hub.

Hong Kong's economy is generally doing well but it faces a range of challenges. In recent years, the mainland has stepped up to open wider to the outside world and signed free trade agreements with many trade partners. With increasing financial, economic and trade interactions with other countries and regions, the mainland's demand for using Hong Kong as a free port to go abroad has been shrinking. To some observers, there has even been a trend of Hong Kong's financial position becoming gradually marginalized. Therefore, Hong Kong needs to reposition itself and find the right path of development as the mainland pushes ahead with its financial opening-up.    

I personally think the best solution would be a common market built among the Chinese mainland, Hong Kong, Macao and Taiwan to bring a new momentum to the local economy, but the long-term commitment should be implemented step by step with patience; another way is to involve Hong Kong further in the mainland's opening-up strategy and the framework of international cooperation, a move that could contribute to economic growth in both Hong Kong and the mainland.

Hong Kong is always the first beneficiary of the mainland's efforts to open up its financial market. Following the Shanghai-Hong Kong Stock Connect launched in November 2014, through which investors in each market are able to trade shares in the other market, another arrangement to allow mutual bond market access between Hong Kong and the mainland is likely to be established soon, adding to the evidence that Hong Kong could play an important role in the opening-up strategy.

The mainland's move to open its financial market to overseas investors, as well as the explosive growth of outbound investment by Chinese enterprises, is likely to boost offshore business involving the yuan. This will provide a fresh opportunity for economic development in Hong Kong, which remains the dominant offshore yuan center. Innovative financial tools are needed in order to better hedge against exchange rate risks since the yuan has been experiencing two-way fluctuations. As a financial center, Hong Kong has unique advantages in this regard to promote yuan internationalization through new financial tools created for investors who usually prefer to use offshore yuan-denominated assets within an appreciation cycle and yuan-denominated debt within a depreciation cycle.

Hong Kong's strength in financial services will help it play a role in China's Belt and Road (B&R) initiative. Earlier this month, Hong Kong became a new member of the Asian Infrastructure Investment Bank (AIIB), a body helping to bolster the B&R initiative. The AIIB is seeking to co-finance projects with other financial institutions and has used the public-private-partnership (PPP) model to attract private capital to support infrastructure projects. As an international financial center, Hong Kong has a sophisticated financial market, which will make the city a good place to help the AIIB raise funds.

With the implementation of the B&R initiative, there will also be fresh opportunities for Hong Kong's economy. Even though it is already a mature economy, Hong Kong pays less attention to certain industries like arbitration. Hong Kong has a strong legal network focusing on the international economy. With the increasing investment abroad by Chinese enterprises, lawsuits and trade disputes may also increase. If Hong Kong can cultivate itself as an arbitration center, this will become a new growth point for Hong Kong's economic transformation and upgrading.

Hong Kong also has advantages in terms of commercial services. For instance, Hong Kong architects have international-level competence in building design, project supervision, construction and other aspects, which can be used in many international projects, including infrastructure projects along the B&R route. In addition, Hong Kong can offer opportunities in education, research and development, design, leisure, tourism, culture and other fields.

Hong Kong should explore more in unfamiliar areas. For example, India was also colonized by Britain, so Hong Kong actually has multiple advantages in language and other aspects to develop economic and trade relations with India. However, I've asked many people in Hong Kong, from senior officials to the young, and most of them have never been to India. As we all know, India is now in a process of rapid economic development. Its market potential is huge, which has led many Chinese companies to seek investment opportunities there. In this context, Hong Kong should be more open to keeping up with new trends in international trade and economic development.

The author is the director of the Research Center for Regional Economic Cooperation under the Chinese Academy of International Trade and Economic Cooperation. bizopinion@globaltimes.com.cn


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