24 April 2019
Despite some headwinds, Hong Kong still has a vital role in China's transshipment, FDI flows and financial reforms. Photo: Bloomberg
Despite some headwinds, Hong Kong still has a vital role in China's transshipment, FDI flows and financial reforms. Photo: Bloomberg

Why China still needs Hong Kong

There have been some common yet profound misconceptions in the mainland about Hong Kong.

One is that the former British colony is now in total chaos amid the ongoing Occupy Central protests.

Another is that without China, Hong Kong is almost dead. Some argue that with Beijing’s continued economic reforms and initiatives like the Shanghai free-trade zone, it’s time for Hong Kong to take a back seat, especially in areas like foreign direct investment (FDI) and trade. The special administrative region is considered to be past its prime.

Yet statistics show a different picture.

According to Chinese commerce ministry data, the nation’s FDI inflow in 2013 amounted to US$117.6 billion. Hong Kong was the single largest source of the FDI with US$78.3 billion, more than double the amount from the rest of the top 10 countries (Singapore, Japan, Taiwan, United States, South Korea, Germany, Netherlands, United Kingdom and France) combined.

During the seven months to July this year, FDI flow from Hong Kong amounted to US$49.4 billion, representing almost 70 percent of China’s total (US$71.1 billion) for the period.

As a gateway to China, Hong Kong still plays a pivotal role in supplying or channeling capital to the mainland.

Chinese Premier Li Keqiang was quoted as saying on the sidelines of the recent World Economic Forum in Tianjin that every US$100 million FDI can generate 1.5 billion yuan (US$245 million) of gross domestic product in China and create 20,000 jobs.

In terms of trade, as major advanced economies resort to barriers to protect their manufacturing sectors, Hong Kong’s virtue as a free trade hub becomes a boon to millions of Chinese exporters.

Goods can be first exported to Hong Kong — the world’s ninth-largest trading economy — and then transshipped to the destination market in the name of re-export so as to avert barriers. One example is Hong Kong’s role as a vital entrepôt for trade between China and the ASEAN; the re-export volume via Hong Kong in 2012 was US$44.6 billion.

China also needs Hong Kong to help push forward financial and stock market reforms, which is key to cultivating a mature, market-oriented economy.

Raymond Leung Hai-ming, president of Hong Kong Mediation Center, points out that on top of transshipment, FDI and re-export, Hong Kong now has a new, more comprehensive role to play. A slew of landmark events — from the state-owned conglomerate CITIC Group’s de facto floatation at the local bourse to the Hong Kong-Shanghai stock exchange link — all bear these hallmarks.

Hong Kong is an ideal place for Chinese companies to raise capital. IPO funds raised by the Hong Kong Stock Exchange last year totaled HK$166.5 billion (US$21.46 billion), making the territory the world’s second-largest IPO market.

The upcoming bourse link can also help Shanghai stock exchange and other mainland financial institutions align with international standard of regulation, transparency and corporate governance. Hong Kong is also a ready springboard for Chinese firms that seek global expansion.

Being an open economy, Hong Kong is more vulnerable to external volatilities. Despite that, the territory has maintained an average growth rate of around 4 percent in the past decade, better than many other developed economies.

Hong Kong’s economy is far more competitive and resilient than what some mainlanders think, and it still has lot of economic value to offer.

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– Contact the writer at [email protected]


Hong Kong, the world’s second largest IPO market last year, is the most ideal place for Chinese firms to raise capital. Photo: Bloomberg

EJ Insight writer

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