22 October 2016
Hong Kong can play a key role in China's 'One Belt One Road' strategy by capitalizing on its strengths in finance and trade and its vast pool of professional talent. Photo: Bloomberg
Hong Kong can play a key role in China's 'One Belt One Road' strategy by capitalizing on its strengths in finance and trade and its vast pool of professional talent. Photo: Bloomberg

Hong Kong well placed to seize Belt and Road opportunities

Hong Kong has great advantages in trading, logistics and financial services that can help the city play a key role in China’s “One Belt One Road” strategy.

The mainland’s grand plan can stimulate economic growth in the special administrative region and enable the place to cement its status as a major global financial center.

The “One Belt One Road” strategy encompasses 65 nations and regions in Asia, Europe and Africa, covering 30 percent of world GDP and 4.4 billion population.

Beijing intends to enhance external investment and trade, promote global use of renminbi and absorb the nation’s excessive capacity. It’s estimated that annual trade between China and nations along the routes would hit over US$2.5 trillion in the next decade.

That has already been reflected in China’s outbound investment in last two years. In the first 10 months of last year, China invested a total of US$13.17 billion in 49 nations along the routes, up 36.7 percent from the year before.

Of this, Singapore, Kazakhstan, Laos, Indonesia and Russia received most of the investment.

Improving infrastructure construction in these countries is one of the top priorities. The Chinese government has offered funding for various infrastructure projects.

Also, Beijing has taken the initiative to establish two financial institutions, Silk Road Fund and Asian Infrastructure Investment Bank (AIIB), to cope with massive financing demand.

China will put US$40 billion into the Silk Road Fund to improve infrastructure links. 

Meanwhile, the AIIB, which has 65 founding members, has doubled its initial subscribed capital of US$50 billion to US$100 billion.

We’ve seen more and more private companies make investment in “One Belt One Road” nations. For example, Chinese telecom equipment giant Huawei and e-commerce titan Alibaba poured huge sums into India.

However, the massive financing needs in those infrastructure projects mean that companies have to rely on financial hubs like Hong Kong.

Hong Kong has always been a key gateway for China investment, trade and finance. It is also the world’s leading offshore renminbi center. The city can leverage its strength in financial services to provide funding for Belt and Road-related infrastructure projects.

As the leading financial hub in Asia, Hong Kong is attractive for both Silk Road Fund and AIIB to establish financing and operational units in the city. For example, the AIIB could issue debt in Hong Kong to obtain cheap funds and enjoy advanced financial services.

The city has played a major role in helping mainland Chinese companies raise foreign capital and in assisting in mergers and acquisitions, trading, legal, consultancy and other professional services.

Hong Kong is now the world’s largest IPO market. More than half of the market capitalization in the city’s stock exchange is accounted for by mainland companies. Last year, IPO deals in Hong Kong amounted to US$33.7 billion, helping the city regain its global IPO crown.

China is expected to accelerate renminbi internationalization as it will help provide funding for many belt and road projects. More importantly, China needs a reliable global offshore renminbi service center to link all nations and regions along the routes.

Hong Kong, which sits at the center of cross-border renminbi settlement and clearing, will be able to capture the opportunity. We’ll see more renminbi products as they will help raise more funds for the projects.

As of the end of last year, renminbi deposits in Hong Kong stood at 851 billion yuan. Meanwhile, cross-border renminbi remittance for trading settlement totaled 667.5 billion yuan by December. Chinese currency has been more recognized globally, as Beijing eases cross-border capital controls.

The dim sum bond market has shown significant growth in recent years. New issuance of dim sum bonds rose by 393 billion yuan last year.

The “One Belt One Road” strategy will drive trade growth between China and nations along the routes, which would further stimulate renminbi bond issuance in Hong Kong.

Meanwhile, we should also remember that the Shanghai-Hong Kong Stock Connect has established direct mutual market link. That has great significance in the long run as it strengthens Hong Kong’s leading role as global renminbi center.

A stock link between Shenzhen and Hong Kong is also underway.

China’s belt and road initiatives will require a great number of international professional talents, which Hong Kong can provide.

The city boasts many local and international financial services organizations, and high-caliber talents in legal, accounting, architecture, engineering, information and technology, logistics, high-end catering, etc.

The city also has a vast talent pool to assist in managing various projects under the Belt and Road strategy.

Overall, China’s plan is aimed at making the nation play a more proactive role in regional integration as well as global economy. Beijing has already drafted a clear blueprint.

Hong Kong should seize the opportunities that will unfold in the coming years.

This article appeared in the Hong Kong Economic Journal on Feb. 19.

Translation by Julie Zhu

[Chinese version 中文版]

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Chief Executive Officer of Greater China at The Hongkong and Shanghai Banking Corporation Limited

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