The biggest theme of Chief Executive Leung Chun-ying’s policy address for 2016 is the One Belt, One Road (OBOR) initiative.
He said Hong Kong should actively participate in the OBOR initiative by serving as its platform for financing, trade and logistics, professional services and infrastructure services.
In my opinion, building the financing platform, or playing the role of an investment center, for OBOR is the top priority.
The OBOR initiative aims to tighten economic ties between China and the 65 countries along the two routes.
Stronger economic connections will be built at both the physical level (connected infrastructure systems, trade, etc.) and the virtual level (connected capital pool, information and among residents). The physical connection is fundamental while the virtual level will serve the physical connection.
Infrastructure is the key to a physically connected region. As we all know, the countries along the OBOR are mostly developing countries with poor infrastructure.
The construction of better infrastructure facilities will need a great amount of money. Some estimate that just the Asian segment will need an investment of US$800 billion a year.
But the Asian Infrastructure Investment Bank only has capital of US$100 billion and the Silkroad Foundation has about US$40 billion. It’s far from enough.
Raising funds from various channels for OBOR is a role for Hong Kong to take. By playing as an investment center or financing platform for the initiative, the city can secure the market share.
Hong Kong will be a source of the funds, while money from the mainland will form the bigger part of the funds for related projects.
Mainland investors, like what they did for other outbound investments, will establish OBOR-related asset management, investment or other special purpose vehicles (SPV) in Hong Kong, then make the investment in countries covered by the OBOR initiative.
Why will they invest via the Hong Kong SPV? Because Hong Kong’s advanced professional services will help improve executive quality, provide supplementary services and gain credit enforcement in international markets.
Hong Kong’s role as a financing platform for OBOR will strengthen its position as a hub for mainland companies to manage their offshore assets while forming a new economy growth point for the city.
It will also bring opportunities for the other three platforms: fundraising, professional services and operational support.
Hong Kong has a robust banking industry, stock market and renminbi bond market. It will be the priority channel for funding the investments.
As for professional services, Hong Kong can provide top-level legal, accounting, insurance, reinsurance, project assessment, and management consulting services, among others.
Meanwhile, its advanced hardware and software operating systems can provide sufficient support at the execution level.
Overall, the “super connector” role will increase the demand and boost economic activities in Hong Kong.
One challenge for Hong Kong is that “one belt” is an inland route, which is far from the city, while the mainland already has many alternative sea lanes to the “one road” countries.
The Hong Kong government should step up efforts to implement the expansion plan for the city’s mainland networking, as CY Leung said in the policy address.
Hong Kong will have border channels to attract mainland authorities, institutions and individuals to set up their OBOR investment vehicles in the city.
This article appeared in the Hong Kong Economic Journal on Feb. 1.
Translation by Myssie You
[Chinese version 中文版]
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