In China’s strategy of “Belt and Road”, Hong Kong is to play the role as a financial hub and center of knowledge about the countries on the route — and to do so, it must re-invent itself.
That is the view of Professor Thomas Chan (陳文鸿), director of the China Business Center at the Hong Kong Polytechnic University.
He has provided a detailed analysis of the role of Hong Kong, one of the first, on a subject that remains a mystery to many residents.
They wonder how the city is related to dozens of countries in other continents of the world.
“Hong Kong is already the major hub for renminbi trade payments,” Chen said.
According to SWIFT, the value in weight of the renminbi used for payments exchanged with China and Hong Kong within Asia Pacific increased by 327 percent between April 2012 and April 2015.
During this period, the Chinese currency moved from No. 5 to the top currency used in Asia Pacific to do business with Greater China.
“As China increases its trade with the Belt and Road countries, the use of renminbi will be increased and Hong Kong is best positioned as the major offshore center for the currency clearing.
“The local offshore market is the deepest and broadest among all overseas clearing centres.
In 2015, renminbi trade settlements made in Hong Kong via local banks amounted to 68 trillion yuan, an increase of 9 percent over 2014.
“It could offer all kinds of trade-related credit services and hedging products. Its existing renminbi bond market could also provide longer term liquidity in renminbi to China’s trading partners under the Belt and Road strategy,” he said.
Hong Kong can offer financial services such as international banking, insurance, collective investment schemes, structured finance, headquarter services and foreign direct investment, including financial management and treasury operations of multinational corporations, both foreign and Chinese.
The recent approval in Hong Kong of the full branch office operation of a major Russian bank may be an indicator of the start of a growing financial presence of a major CIS (Commonwealth of International States).
Dim sum bonds have attracted many Russian firms.
Hong Kong can also serve as a global services and knowledge center for the Belt and Road bloc of countries, ranging from investment and trade services to legal arbitration, education and training and joint innovation centre functions related to advanced producer services.
But Chan said Hong Kong needs to re-invent itself and go beyond its traditional preoccupation with the mainland and partners like the US, Japan and Europe.
“It must embrace the opportunities created under the strategy for mostly emergent markets and developing countries with a great variety of policy (trade and tax) regimes, language and culture and institutional set-ups. It needs to attract and recruit new talents and knowledge-intensive advanced producer firms that could work in the new environment of multiple policy regimes and civilisations of the Belt and Road countries,” he said.
This means opening up the local society, especially its education system, to people from the Belt and Road countries, fostering more frequent exchanges and helping the setting up of businesses by firms and entrepreneurs from them.
In the past two or three years, there have been a larger group of Russian and Russian-speaking professionals and entrepreneurs coming to work in Hong Kong from more than 1,000 to more than 5,000 at present.
This confirms the geo-locational and institutional advantages of Hong Kong, even though no obvious efforts from the government have been made to attract them.
“The institutional system in Hong Kong is much more pro-business and sophisticated than most in the world. It could serve as the institutional escape as well as institutional arbitrage for all the B & R countries, including China, and on this basis to serve as the platform for non-Belt and Road countries to trade and exchange with the Belt and Road countries.”
He said the strategy presents Hong Kong with a new set of countries with very different institutional and civilizational backgrounds from the usual partner countries.
Specifically, Chan proposes agreements in education exchange and co-operation, cultural exchanges, investment and tax, visa procedures and single window system of customs from all available bilateral and multilateral economic, social and cultural agreements that Hong Kong may learn from and make reference to.
“The ultimate target is to join the many multilateral and regional Free Trade Agreements among the Belt and Road countries.”
He also proposes a unified financial and corporate platform with free trade zones in Guangdong, China, in particular Qianhai.
Hong Kong should also set up research institutes specialising on Belt and Road strategy to offer expert and cross-institutional and cross-cultural knowledge in all strategic issues relating to the development of the strategy for the mainland, the Belt and Road countries and the rest of the world, so as to become the knowledge and information centre of the Belt and Road countries and support the growth and reorganisation of local advanced producer services.
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