Unique bond secures prosperity

Yang Sheng explains why the SAR must continue to develop its vital role as a 'super-connector' between the mainland and rest of the world

Hong Kong's importance to the global economy will increase because of its integration with the Chinese mainland, Chief Executive-designate Carrie Lam Cheng Yuet-ngor told Bloomberg Television last Friday on the sidelines of the Wharton Global Forum, suggesting the city needs to forge closer ties with the mainland to continue to prosper. She is right.

When it comes to discussing Hong Kong's advantages that have led to its economic success over the years, many commentators tend to focus on its colonial legacy. But former colonies are just everywhere - in South Asia, Southeast Asia, Africa, Latin America and many other parts of the world. Many have failed to attain even a fraction of what Hong Kong has achieved economically.

Hong Kong owes much of its success to its unique role as a middleman for the mainland in her interactions with the rest of the world. By catering to the various needs arising on the mainland from time to time, the city has reaped huge economic benefits over the past several decades, leading to its current economic prowess.

The city's economic development has been mainly driven by four pillar industries - trading and logistics, tourism, financial services and business and professional services. These sectors now employ about 1.7 million people, or nearly half of the labor force, and contribute about 60 percent of its GDP.

Mainland demand has played a crucial role in making all these pillar industries. Transshipment has become the backbone of Hong Kong's trading and logistics sector, with re-exports from and to the mainland accounting for 98 percent of overall export shipments. By providing a solid platform for mainland companies to raise international capital and for international investors to invest in the booming mainland economy, Hong Kong has secured a steady flow of business opportunities for its financial services sector. Mainland companies now account for more than 60 percent of the capitalization of the Hong Kong stock market. Meanwhile mainland visitors, who currently account for more than 75 percent of visitor arrivals and about a third of local retail sales, have sustained the tourism industry. Strong demand for services from the manufacturing bases in southern mainland keep Hong Kong's business and professional services sector busy all year round.

The return of Hong Kong to the motherland has further strengthened the city's role in national economic development. Under the "one country, two systems" arrangement, Hong Kong, as a special administrative region of China, provides a controlled environment for the nation to test-run various financial reforms. These include internationalization of yuan and opening up of mainland capital markets - through the Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect and the imminent Bond Connect.

The "one country" factor gives Hong Kong an unrivalled advantage over its rivals in serving the needs of the mainland. This explains why Hong Kong's dominance in the offshore yuan market has been unchallenged and is likely to remain so in future despite great efforts London, Singapore and Sydney have put into carving a bigger share of the market for themselves. It is also the belief of many that the "controlled environment" that only Hong Kong can provide will make the city the most viable global asset allocation center for mainland investors, who find increasing needs to diversify their investment portfolios and wealth.

Hong Kong will retain its economic vigor in the foreseeable future should it continue to aptly play its unique role as the middleman, or "super-connector", between the mainland and the rest of the world. The nation's continuous efforts to further integrate its economy with the global one will give Hong Kong new business opportunities. For example, the Belt and Road Initiative will be another broad stage on which Hong Kong can put its strengths in financial and professional services into full play. Beijing will also find Hong Kong helpful in promoting this ambitious project as the SAR, which practices a system similar to that of the Western world and has adopted international practices in all business dealings, will be nimbler in completing many tasks and achieving objectives. Meanwhile, given the constraints of a small economic base and lack of natural resources including land, promoting further economic integration with the mainland economy by participating in major national development strategies such as the Guangdong-Hong Kong-Macao Greater Bay Area project is another viable strategy to expand the SAR's economy and tackle some of its deep-seated problems.

The author is a current affairs commentator.

(HK Edition 06/30/2017 page1)