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Hong Kong and the Greater Bay Area

Verantwortlicher Autor: Carlo Marino Rome, 15.11.2019, 09:23 Uhr
Kommentar: +++ Wirtschaft und Finanzen +++ Bericht 8024x gelesen

Rome [ENA] Finance has always been a particular strong point for Hong Kong. No other cities in the Greater Bay Area can replace the copious USD liquidity and its financing talent. Hong Kong’s role in finance is crucial to attract foreign investments and fund projects in the GBA. The slowing Chinese economy and US-China trade war are part of the reason Hong Kong’s economy is decelerating rapidly, and the recent social turbulence

has only exacerbated the situation. An important announcement for Hong Kong and Guangdong province was made in February 2019, namely the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area (GBA). The key element for the Greater Bay Area is integration. Hong Kong’s integration with mainland China itself is not a new idea. On the other hand, the question is whether businesses think there are opportunities in this new initiative. After the announcement of the Outline Development Plan, Hong Kong seems to have become a hotbed of anti-government sentiment, but the market perception has again started to deteriorate even with further details of tax harmonization and financial opening.

The high volatility in the GBA’s image is primarily due to a deficit of expectations versus reality developing as the result of the lack of a solid timeline and government funding. Significantly, the backbone of ongoing projects remained narrow as 44% of announcements made by Hong Kong firms on the Greater Bay Area concentrate only on real estate and infrastructure. A smaller amount is related to the comparative advantages, that is financial and legal services, tourism, health care, transport, and education. Free movement of the factors of production, namely labour and capital, are crucial to achieve an integrated economic area. However, full mobility of labour is obviously difficult and the case is even more demanding for capital,

as mainland China does not have a fully open capital account, not even with Hong Kong. It is true that the benefits for Hong Kong could be less obvious at first sight. If free labour and capital movement were accomplished, convergence of income per capita should benefit the poorer cities in Guangdong more. Hong Kong could still benefit but less so in relative terms. Without perfect labour and especially capital movement, it is hard to see how the cities could truly integrate. There’s a lack of tangible plans by the Hong Kong government when compared to Guangdong, which entailed a detailed strategic plan for the next three years. Yet given the unique status of “One Country, Two Systems” and its international recognition,

Hong Kong can be a key contributor to sectors related to confidence, finance and mobility, and it needs to entirely utilize its comparative advantages in order to fully realize the potential of the GBA integration. While the above components have been the catalyst for previous integration between Hong Kong and mainland China, higher mobility is the unique feature for the GBA. With freer flow of people and capital in the future, opportunities could arise when this increased mobility creates synergy with confidence and finance. Sectors with high growth could include tourism, health care, aviation and education, and laxer restrictions will mean more cross-border insurance policies or financial product sales and bring benefit to the financial

services industry overall. In the medium term, the key obstacle is the free flow of factors of production, and in particular between Hong Kong and Guangdong. Free movement of labour is a lesser problem than capital, which seems impossible, as it either requires Guangdong to fully open its capital account or Hong Kong to close it, at least to some extent. The former seems hard in today’s scenario and the latter could be risky for Hong Kong and the Greater Bay Area as it would diminish its attractiveness for overseas investors and the role of Hong Kong in intermediating capital.

Therefore, it remains uncertain how the various governments can navigate the many issues without hindering the uniqueness of different systems, and the poor recent sentiment also draws attention to further concerns and essential challenges Hong Kong tackles in integrating with the rest of the GBA. Finding a harmonizing act on the different expectations will be an essential challenge in the future. The internationally recognized legal system has served both Chinese and foreign investors well, preserving the confidence of doing business in Hong Kong at present. This means Hong Kong is best positioned to link opportunities and solve disputes between Chinese and foreign investors through legal services, and more and more technology-related

intellectual property rights. So far in Beijing the principle “One Country, Two Systems” has created more than one problem, nevertheless the People's Republic of China has much to gain from its conservation. To the extent that PRC succeeds in balancing rights and duties in its relationship with Hong Kong, it will continue to see this progressive and innovative policy as functional to its long-term interests.

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