England will find itself out on a limb if Scotland and Northern Ireland decide to split from the United Kingdom following the Brexit vote.
If the break-up happens, UK will cease to be a genuine global power.
Following the recent developments in Britain, some observers have suggested that the renminbi’s European trading hub be shifted out of London and moved into Frankfurt or Brussels.
While the argument is understandable, we should bear in mind that the shape of things to come for the euro and the European Union represent a big uncertainty itself.
The global financial markets, meanwhile, remain precarious, as socioeconomic provincialism and protectionism appear to be taking root among many people.
Given all these factors, one can argue that Beijing must hit the brakes on its efforts to take its currency international.
To avoid exchange rate volatility, China may retain a firm grip over renminbi capital account convertibility in the foreseeable future.
If the forecast of delayed renminbi marketization carries conviction, Beijing needs to multiply the circulation and foreign exchange turnover of Hong Kong dollars to allow the currency to serve as the “shadow” renminbi.
The redback, together with the Hong Kong currency, may be well in the first runner-up position as one of the world’s most traded currency if the euro is weighed down by further EU member exits.
In the future, Africa’s exports to China may all be settled in renminbi. And Hong Kong’s role will be indispensable. Traders can easily convert the money, via banks in the city, into Hong Kong dollars and other currencies and channel the capital elsewhere.
To align itself for the belt and road initiative and help further China’s economic interests in Eurasia, Hong Kong needs to boost the size of its own economy.
The city’s purchasing power parity-adjusted gross domestic product amounted to US$416 billion in 2014, according to data from Brookings Institution.
That makes it roughly half of that of London and a fourth of Tokyo’s annual output, the world’s highest.
One of Hong Kong’s bottlenecks is land scarcity.
One solution is to merge Hong Kong with Shenzhen after 2047.
If that is done, their combined economic size may dwarf that of London. Shenzhen’s economic output was US$363 billion in 2014.
The German reunification in 1989, in particular how Berlin reintegrated the two halves of the city, can perhaps be a role model for a potential Hong Kong-Shenzhen joint metropolis.
After the merger, Hong Kong must expand its liquidity pool.
One way is for the central authorities to inject part of its massive foreign currency reserve, mostly US dollars, into Hong Kong’s financial sector for conversion into Hong Kong dollars. Similarly, renminbi-denominated government and private assets in Shenzhen can be converted in an orderly manner at an officially fixed rate.
The stock exchanges of the two cities must also be amalgamated.
Efforts should be made to attract financial institutions in Eastern Europe, Africa, Middle East, etc to list, raise funds or issue Islamic bonds in Hong Kong and set up regional headquarters in new business districts, like some areas in Shenzhen where rents can be more affordable.
If Hong Kong and Shenzhen can create synergy and economies of scale, in particular in an enormous and well-oiled financial sector, the pair as a whole can edge up further in the global hierarchy of economic centers.
The Hong Kong law, standards and qualifications concerning governance, municipal services and professional services should be made applicable to Shenzhen after the merger. For instance, traditional Chinese and English should continue to be official languages.
Shenzhen residents will have to pass Hong Kong licensing examinations to render professional services in medicine, engineering, accounting, law, surveying, etc.
The Independent Commission Against Corruption, meanwhile, will enforce the Prevention of Bribery Ordinance in the Shenzhen part of the new megacity.
In other aspects regarding daily life, rules that are in keeping with international practice should be adopted, like right-hand traffic, which predominates most of the continental landmasses.
The SAR’s top post, the chief executive, may be replaced by the mayor of Hong Kong after 2047. The candidate can come from people holding senior ministerial-level posts, with the appointment done by the central authorities.
The entire civil service and administrative officer grade system would be retained post 2047 but principal officials, including secretaries and bureau directors should be selected from among members of political parties based solely on individual merit, as a means to form a multi-party coalition government.
The new government can then gain wide support in the legislature to get bills through the chamber, resolving the perpetual deadlock between the Legislature and the Executive.
Merging Hong Kong with Shenzhen in or after 2047 will be an arduous yet manageable task.
If this is to be done, central authorities will need to start drafting legislations, including a new Basic Law, in the near future so that there can be some 30 years for full preparations.
Beijing must keep the entire process transparent and announce the progress regularly.
People who believe in the nation’s greater future can expect ample opportunities from the integration of the two cities.
This article appeared in the Hong Kong Economic Journal on July 12.
Translation by Frank Chen
[Chinese version 中文版]
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