HK’s role for next 20 years? Silk Road ‘super-connector’
It doesn't have to be part of Xi's Chinese Dream if it doesn't want to, but Hong Kong remains ideally positioned to provide much of the glue in a China-led globalization 2.0
It was 20 years ago today. Oh, those were heady, exciting days, informally regulated by a clock in Beijing’s Tiananmen counting even the seconds left for Hong Kong’s return to the motherland.
They were ominous days, too. At the Foreign Correspondents Club in Hong Kong, temporarily propelled to the center of the universe, booze-driven Western journalists sketched Apocalypse Now scenarios for the ultimate crossroads of East and West.
The endgame turned out to be the proverbial anti-climax. No border invasion. No mass arrests – not even one arrest. No currency crash (that in fact would happen to the Thai baht, a day later). No newspaper shutdown. PLA soldiers quietly occupied barracks left by the Brits. No goose-stepping troops patrolled bustling Kowloon.
Chris Patten, the last colonial governor and a fan of egg tarts, left alongside a somber Prince Charles in the royal yacht Britannia, which, deprived of ruling the nearby waves, was later decommissioned. The Patten daughters wept, as profusely as the Blade Runner-style rain fell.
After partying at the packed Post 1997 club like there was no tomorrow, I took a plane to Xian the day after, on my way to the Silk Road, Xinjiang and beyond, just to learn that in fact large swathes of Asia had also handed over their sovereignty. The crash of the baht was the start of the Asian financial crisis, which would hit Thailand, Indonesia and South Korea particularly hard. As the top global financial center in Asia, Hong Kong recovered – fast.
Based on what I had learned by studying the Little Helmsman Deng Xiaoping’s master plan, my gut feeling was that Beijing would allow Hong Kong to remain essentially what it was, that it would hold to the solemn “one country, two systems” promise enshrined in the Sino-British Joint Declaration and Hong Kong’s Basic Law, the city’s de facto mini-constitution.
Hong Kong appears to have lost its unique position as a gateway to China, and then attempted to rebrand itself as a glitzy entertainment/shopping/tourism hub. But that’s just not enough
In the early years, it all went well. According to Hong Kong University surveys, public confidence in “one country, two systems” was around 60%.
But then, over the years, the feeling grew of Beijing encroaching on Hong Kong’s cherished autonomy – leading to selected cries in favor of “independence.” Patten, by the way, now tells Hong Kong youth to forget about the idea of a “breakaway city-state”.
Three years ago, the State Council laid down the law, via a 15,500-word white paper on the “accurate” understanding of “one country, two systems”. In a nutshell, everything related to Hong Kong’s autonomy depends on Beijing’s final word. “One country” trumps “two systems”.
And that brings us to the 20th anniversary of the handover.
Hong Kong as a ‘super-connector’
President Xi Jinping’s visit to Hong Kong is, of course, pregnant with meaning (he will be followed, next week, by the Liaoning aircraft carrier). But even more crucial is where he’s going next: Russia (yet another “strategic partnership” mini-summit with Vladimir Putin) and Germany, for the G20 in Hamburg.
The China-Russia partnership is as much about infrastructure and energy (the China-Mongolia-Russia Economic Corridor; the Moscow-Kazan high-speed railway; Arctic sea route exploration; energy pipelines) as it is about aligning the New Silk Roads, a.k.a. the Belt and Road Initiative (BRI), with the Eurasian Economic Union (EEU).
At the 12th G-20, Xi will once again stress globalization 2.0, the ongoing revolution in intelligent industries and sustainable development. This is all music to the ears of German industrialists, who want solid, expanding trade relations all across Eurasia.
Hong Kong appears to have lost its unique position as a gateway to China, and then attempted to rebrand itself as a glitzy entertainment/shopping/tourism hub. But that’s just not enough.
BRI needs more… And that’s where Hong Kong fits in – as an all-encompassing environment capable of handling finance, investment and even dispute resolution across Eurasia
The numbers tell only part of the story. Hong Kong is a founding member of the WTO; total trade (as of 2016) stands at US$978 billion.
Hong Kong benefits from the world’s second-largest inflow of foreign direct investment (FDI), after the US.
GDP jumped from US$177 billion in 1997 to US$321 billion today, while foreign reserves jumped from US$93 billion to US$390 billion. Only six mainland firms were present in Hong Kong in 1997; now there are over 1,000. There was no yuan trade settlement in 1997 (it was launched in 2004); now turnover is at 4.5 trillion yuan.
Crucially, Hong Kong is also one of the 70 members of the Asia Infrastructure Investment Bank (AIIB), and has joined BRI.
Hong Kong leaders are very much aware that China is the top trading partner for no less than 124 nations. Europe already does more trade with Asia than the US$1 trillion it does with the US – and that’s even before the EU has struck free trade agreements with most of Asia, and before the BRI infrastructure bonanza has really taken off.
The China Development Bank (CDB) and Export-Import Bank of China (EXIM) have already given US$200 billion in loans – sweeping away what Xi himself has characterized as a “prominent challenge” to BRI.
So far, BRI-related loans have been mostly government-to- government, with very low interest rates and very long repayment schedules. But BRI needs more – much more. And that’s where Hong Kong fits in – as an all-encompassing environment capable of handling finance, investment and even dispute resolution across Eurasia. Nothing could be more natural; after all, Hong Kong has learned plenty of facts on the ground as mainland China has developed.
Hong Kong companies are about to form a consortium to build infrastructure and industrial parks in BRI-related nations such as Thailand and Vietnam. The Hong Kong Trade and Development Council (HKTDC) has already identified eight nations as initial targets for Hong Kong investment: Vietnam, Thailand, Indonesia, Saudi Arabia, United Arab Emirates, Poland, Hungary and the Czech Republic.
MTR Corp, meanwhile, which operates Hong Kong’s public transport network, is partnering with China Railway to bid for a contract to build the Singapore-Kuala Lumpur high-speed railway.
Peter Wong, deputy chairman and chief executive at HSBC Asia-Pacific, stresses how “enterprises from the Chinese mainland ‘going out’ are accessing Hong Kong’s capital markets, bank liquidity, private equity funds, treasury services and professional talents across a range of sectors… As the Belt and Road Initiative promotes greater international use of the renminbi for trade and investment, Hong Kong is ideally positioned to benefit as the world’s leading offshore renminbi centre.”
That fits in with the argument made by Andre Sheng, a fellow of the Asia Global Institute at Hong Kong University, that Hong Kong must “become the ‘super-connector’ for China and Asia, thanks to BRI, setting up ‘its own ‘infrastructure for infrastructure’, creating the deep knowledge of the One Belt, One Road region that mainland companies, banks and officials badly need.”
Don’t forget the Pearl River Delta
And then there’s Hong Kong’s new role as a key node of the immensely ambitious Guangdong-Hong Kong-Macau Greater Bay Area, an 11-city cluster which also includes the tech innovation hub of Shenzhen and Zhuhai, with their combined GDP of US$1.36 trillion in 2016 and estimated population of 66.71 million.
The “Greater Bay Area” here is in fact the Pearl River Delta, which has its own infrastructure/connectivity crown jewel: the US$10.6 billion, 55 km-long Hong Kong-Zhuhai-Macau bridge, set to be finished by the end of 2017 and jointly financed by the central government in Beijing along with Hong Kong, Macau and assorted bank loans.
Premier Li Keqiang himself has described the Delta as a model of sustainable development: in fact, the key link for China’s immense global supply chains. The Pearl River Delta is one of China’s three big clusters of the future, along with the Yangtze River Delta and the Beijing-Tianjin-Bohai corridor.
No matter what happens after 2047, during the next three decades the people of Hong Kong will always be proud of ‘two systems’ as a feature of ‘one country’
Andre Sheng is correct when he stresses the leadership in Beijing sees Hong Kong as “a source of valuable economic-development ‘software’, including an independent judiciary, a robust anti-corruption regime, a stable currency, and world-class capital markets.” And this software will be essential to building BRI’s hardware.
The majority of Hong Kong’s population never supported the notion of Hong Kong “independence” anyway. No matter what happens after 2047, during the next three decades the people of Hong Kong – hard-working, energetic, creative, bold – will always be proud of “two systems” as a feature of “one country.”
In parallel, Beijing knows all too well how crucial an asset Hong Kong is for China. Rule of law, free flow of information – that won’t change. It’s up to Hong Kong to fine-tune the software and invest in BRI not only as part of Xi’s Chinese Dream, but of an inclusive, globalization 2.0, Hong Kong Dream.