How Hong Kong can benefit from Belt and Road initiatives

Chi Lo December 28, 2015 14:55

Ignorance about how Hong Kong can leverage on China’s “Belt and Road” (BAR) initiatives, which is now the official name for the “One Belt, One Road” initiatives, comes from a lack of holistic analysis of the city's strategic positioning in the BAR plan.

BAR refers to the creation of an economic land belt including countries along the original Silk Road through Central and West Asia, the Middle East and Eastern Europe, and a new sea route that links China to South and Southeast Asia, the African coast and the Mediterranean through port and infrastructure facilities.

Superficial analysis on the land belt has generated a lot of illusive excitement about this east-west land route of BAR because it is fraught with difficulties. First, infrastructure projects in this region face unforgiving terrain through tall mountains, as well as threats from armed militants.

Second, the BAR initiatives to integrate the Central Asian economies with China could put Beijing on a collision course with Moscow, which has been lobbying neighboring countries to join its Eurasian Economic Union.

As China expands its influence into parts of the former Soviet Union, Central Asia could become the focus of tensions between China and Russia and possibly also Iran, Turkey and some western countries.

Even though China has quietly become the pre-eminent economic power in the region over the past two decades with trade with the region surging, and even though western interest in Central Asia has receded with the military drawn down from Afghanistan and Russia’s ambition curtailed by its economic difficulties, it will not be smooth sailing for BAR implementation.

Central Asia has traditionally felt greater affiliation with Russia (due to its inclusion in the former Soviet Union) and Turkey, and many politicians there do not trust China.

Russia has also been skeptical of China’s economic expansion in the region, which Moscow sees as its own backyard housing the world’s largest natural coal and gas reserves.

Anyhow, Hong Kong is more than 10,000 kilometers away from the economically active zones of this land belt, so it is not directly relevant to it. What is crucial is the Mekong sub-region, which lies on the north-south routes of BAR.

Forget about all other parts of BAR, the Mekong sub-region is likely to be the first to benefit from BAR implementation. It includes mainland ASEAN countries, or ASEAN excluding Indonesia, Brunei and the Philippines.

BAR plans are to build extensive rail linkages with the region, which has better political relations with China than many other parts, and is geographically close to it. And Hong Kong is strategically well-positioned to be linked to this part of BAR.

Beijing has designated Yunnan a gateway between China and the Mekong sub-region, with Kunming as the base for building an international transport corridor from China to Southeast Asia.

Kunming (which is only about 1,000 kilometers away from Hong Kong and is linked to the city by rail and air) plays a pivotal role in connecting China with Southeast Asia, with Beijing planning to make it a strategic hub stretching through the Mekong sub-region to secure closer trade and investment links with Malaysia and Singapore.

Railway links are planned to connect other parts of China via Kunming with Laos, Myanmar and Thailand and the economically active zones of the Mekong sub-region.

More crucially, Yunnan will link with the neighboring province of Guangxi, which is sandwiched between Hong Kong and Vietnam, serving together as a hub connecting China’s rich Pearl River Delta (PRD) to the east with the Mekong sub-region to the west.

Within China, Beijing plans to develop Kunming into a transport hub over the next decade linking all major cities and provinces by road and railway networks and cutting travel time to within 14 hours throughout the country.

West of Kunming, BAR aims to link China with Myanmar, via the Myanmar-Thailand rail link, joining the railway networks in ASEAN countries all the way down to the Indian Ocean.

All this strategic development links Hong Kong, via the PRD and its communication links with the rest of China, to the most promising part of BAR in the Mekong sub-region, Southeast Asia and beyond.

BAR will open up new opportunities for Hong Kong’s trade sector, even for the traditional textile and garment segments.

No doubt Hong Kong’s comparative advantage lies in its service sector. So export of professional services via BAR to the economically fertile Southeast Asia is a new scope for Hong Kong’s trade sector.

Last but not least, Hong Kong expertise in financial services can certainly contribute to the funding effort of the China-led Asian Infrastructure Investment Bank, the Silk Road Fund and the New Development Bank on BAR implementation.

The question is whether Hong Kong is prepared to take advantage of its strategic location and economic expertise to be an integrated part of BAR.

It is time for the city to focus on thinking about its future more constructively.

Opinions here are of the author’s and do not necessarily reflect his employer’s.

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CG

Chi Lo

Senior economist of BNP Paribas Investment Partners (Asia) Ltd. and author of “China’s Impossible Trinity – The Structural Challenges to the Chinese Dream”