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Can
China really turn Hong Kong around?
By Carrie Chan
HONG KONG - In a continuing effort to reverse six years of Hong Kong's deep
economic pain, the mainland government and the Hong Kong Special Administrative
Region are considering seeking "investment immigrants" from the mainland to
pump money into the SAR's economy.
However, despite the fact that the plan would inject more capital inflow into
Hong Kong, it appears mainly aimed at stimulating the property market and
protecting the territory's mega-rich property oligarchs at a time when a
variety of other measures are necessary to move the economy forward. There seem
to be no provisions to create employment opportunities at a time when the
jobless rate has reached an all-time high of 8.6 percent. With the
underemployed, that figure rises to 12.9 percent, according to Hong Kong
government figures. And, while the rudiments of the plan are now in place, it
doesn't yet apply to mainland Chinese.
Hong Kong in the wake of its 1997 handover to China from British rule has
suffered continuing deflation despite all government efforts, many of them
misguided, at reflating the economy. The mainland government, increasingly
concerned about the SAR's woes, in fact has introduced a series of measures to
help boost the economy.
For instance, the Closer Economic Partnership Arrangement (CEPA), a free-trade
agreement to allow goods to pass freely between the SAR and the mainland
without tariffs, was pushed through in June. Mainland tourists now are allowed
to visit the SAR as individuals rather than as members of tour groups. A
proposed QDII or Qualified Domestic Institutional Investor program is designed
to allow authorized institutional investors to make investments in Hong Kong,
though it is not clear when it will come into being.
On Sunday, Chief Executive Tung Chee-hwa met with Chinese Vice Premier Wu Yi in
Xiamen to discuss how to implement the CEPA further. The Hong Kong media's
focus at the meeting was on a possible scheme to allow mainlanders to come to
Hong Kong as investment immigrants. Tung told the press that the
investment-immigrant issue was not discussed in detail, but that it had been
placed on the central government's agenda.
Mainlanders' eligibility for Hong Kong's investment immigration is believed to
be another important effort to jump-start the economy, in addition to the
individual-visit scheme launched in July that allows more mainlanders to visit
and, it is hoped, spend more money.
The territory is thus now setting great store by allowing mainlanders to invest
in Hong Kong. China, with growing numbers of the super-rich, would certainly
add liquidity to the economy if they indeed are allowed to join the program and
some do immigrate.
Though Tung denied any detailed discussion of the scheme, the Hong Kong media
have already presumed that the Capital Investment Entrant Scheme (CIES)
announced in March would probably form the base of future consultations, and
that the CIES rules might directly apply to mainlanders, who are currently not
eligible. The CIES, though approved in March by Hong Kong Chief Secretary for
Administration Donald Tsang, didn't commence the application process until
early this month.
The new policy is allegedly applied to all foreign nationals, Macau SAR
residents, Chinese nationals who have obtained permanent-resident status in a
foreign country, stateless persons who have obtained permanent resident status
in a foreign country with proven re-entry facilities and residents of Taiwan.
The investment threshold under the scheme is set at HK$6.5 million
(US$833,333), which would be "ring-fenced" during seven years of mandatory
continuous residence in Hong Kong. The Hong Kong Security Bureau said it
believes the threshold of HK$6.5 million provides a proper balance between
making Hong Kong attractive in the global competition for capital investors and
ensuring that these investors are of an appropriate quality.
However, the new policy does not apply to mainland residents, as
foreign-exchange controls are in effect in China. Obviously, the
foreign-exchange leash is a bottleneck to the mainlander investment immigration
plan. According to Chan Hinglin, associate professor with the department of
economics at Hong Kong Baptist University, if the yuan were allowed to cross
the border, the plan would bring substantial capital to Hong Kong, for the
central government is charged with sufficient foreign-exchange reserves.
In the first six months of this year, China's foreign-exchange reserves have
grown by more than US$60 billion, half of which is derived from foreign trade,
the other half re-flow. This dispels worries over capital sufficiency. On the
other hand, the assumed HK$6.5 million threshold is not too high, given China's
huge foreign-exchange reserves, Chan said. Currently, China has recorded more
than US$340 billion of foreign-exchange reserves, the world's second-biggest
after Japan's.
A major worry is that when the investment door opens to the mainland, more
unidentified funds will flood into Hong Kong. The mainland lacks a mature
financial market and a sound supervision system, giving rise to the possibility
that investment immigration could become another channel of money-laundering,
as can be seen in the case of a Shanghai property mogul who was recently
charged with obtaining illegal loans from a Chinese bank.
Macau, the much smaller former Portuguese colony 35 kilometers from Hong Kong,
which was returned to China in late 1999, has already initiated an
investment-immigration scheme. Covering only a landmass of 25.4 square
kilometers, Macau's gross domestic product (GDP) in 2002 was only US$6.73
billion, about 4 percent of Hong Kong's US$161.5 billion. But it long ago
opened the investment door to mainlanders, with an investment threshold of 1
million Macanese patacas (US$124,486). In 2002, Macau received a capital influx
of roughly 1 billion patacas from the scheme.
Nonetheless, since Hong Kong is much different from the tiny enclave of Macau,
it would be difficult to extrapolate those results to Hong Kong. It remains to
be seen what the economic effect that the mooted new scheme may bring.
(Copyright 2003 Asia Times Online Co, Ltd. All rights reserved. Please contact
content@atimes.com for information on our
sales and syndication policies.)
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