• Fri
  • Aug 1, 2014
  • Updated: 1:43am
Mr. Shangkong
PUBLISHED : Monday, 08 July, 2013, 2:02am
UPDATED : Friday, 06 September, 2013, 8:06am

Shanghai's free-trade zone puts Hong Kong's future in the spotlight

Hong Kong needs to assess what strengths can help maintain its financial hub status, as the rival mainland city bids to usurp it with its latest deal

BIO

George Chen is the financial editor and columnist at the South China Morning Post. George has covered China's financial industry and economic reforms since 2002. George is the author of Foreign Banks in China. He muses about the interplay between Shanghai and Hong Kong in Mr. Shangkong columns every Monday in print and online. Follow George on Twitter: @george_chen
 

Will the new Shanghai free-trade zone be a game changer?

This question popped up in my mind when I read the breaking news on Wednesday evening about Beijing’s landmark approval to set up a free-trade zone in Shanghai.

To my surprise, when I looked for related reports the following day, the news about Shanghai’s latest victory in winning policy support from the central government had not made it to the front pages of any major Chinese-language newspapers in Hong Kong.

“Is Hong Kong too self-confident or too self-centred?” I asked my colleagues.

For Shanghai, things moved quickly after Premier Li Keqiang visited the Pudong New Area and trade and port facilities in the city in late March. By the end of June, Li had made his decision, and on July 3, state broadcaster CCTV said the State Council had issued an announcement after a meeting chaired by Li that the free-trade zone in Shanghai would be a snapshot of an “upgraded Chinese economy”.

Shanghai’s ambitions to become the nation’s economic engine, leapfrogging Hong Kong as the dominant financial hub in the region, are already an open secret. Shanghai mayor Yang Xiong said after the announcement that the city’s future hinged on the free-trade zone, which could give it a leg up over rivals.

Rivals? Who? Yang did not name any.

To be more realistic, the new free-trade deal for Shanghai, which the cabinet wants to be run on a trial basis in the first phase and then see if such a special zone model can be expanded or copied to other mainland cities, would not immediately threaten Hong Kong’s leading position as one of the world’s most important financial centre cities and also one of the busiest ports.

But in the long run, the Hong Kong government must ask itself what competitive strengths and advantages are unique to the city; and whether these can be kept for the next decade or two. If not, then how can Hong Kong stay competitive, rather than becoming just another mainland city, lagging behind top-tier cities like Shanghai.

The central government is keen to use the free-trade zone in Shanghai as a testing ground for more financial liberalisation, as it supports the city’s ambition to grow into one of the world’s three most important financial centres – on a par with New York and London – by 2020.

Qianhai, just an hour’s drive from Hong Kong, has already been picked by Beijing to explore the possibilities of full convertibility of the yuan, which the government wants to turn into a global currency. Purely from an economic perspective, the time left for Hong Kong to rethink its future is obviously quite limited.

On Wednesday evening, before the news about Shanghai came out, I was watching television at home. I saw Chief Secretary Carrie Lam Cheng Yuet-ngor talking again about budget issues for the West Kowloon arts project.

Time is money, and we spend way too much time just talking about things like West Kowloon when other cities are already taking action and know with crystal clarity what they want to achieve.

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steve_wang
You look very handsome George
kittychan1978
I don't understand all these comparisons between hk v shanghai after 97 or hk v Singapore before 97. each city has its own uniqueness and strengths. look at the states do people compare about nyc v philly? or boston v nyc? geez George, if you think shanghai is so great then why don't you go back and earn your big buck there? this sort of discussion annoys hell out of me as if there ain't already ill feelings on all sorts of levels between hk and china.
johnyuan
Rule of law in Hong Kong is outdated. It is hijacked MOSTLY by the privileged and powerful mixed with incidental otherwise. It has been taken me a few days after I agreed with a writer here that rule of law is an outdated concept which I invite readers for a better alternative that I strike upon that rule of law is valid. Conditionally. The rules must be based on a set of agreed value. It is the protection of that set of values that law must be made and comply or punished when it is broken. I question if Hong Kong’s laws are related with a set of common values. Perhaps Hong Kong would too to draft up a constitution like US and China to which to govern all laws. Hong Kong’s common law is without a constitution to check against. Common law has its history originated from a class system society. Rule of law in Hong Kong is overstated in its RELEVANCY for a fairer society. We must ask more what law that rule of law is being obeyed and so much trumpeted.
.........
I shall rest my case from my exhausted brain for further inquiry on a refreshing idea that rule of law is an outdated concept. In Hong Kong it is really so.
blue
"Your support citing Hong Kong being chosen as a place for business disputes (adjucating) can’t convince me that rule of law is not partial and equitable to all who live under the ‘rule of law’. You must think and look beyond trade disputes. I wish someone can come up a better concept to replace such unreliable piece of rock to rely on. Incidentally, by profession I am an architect."

The rule of law anywhere isn't perfect. But the common law system as it is practiced in HK is at least consistent since courts can refer to past case law, even case law from British and other common law courts. Sure the rich can exploit the laws in their favor, but they can't literally get away with neither murder nor negligence.

That is a major improvement on how the legal system is practiced parts of the world where legal rulings do not look into past case law and are in fact totally arbitrary and subject to political manipulation. This makes outside investors nervous since they want to deal with a politically neutral judiciary. Hence that is why HK is used often to settle commercial legal disputes, even between mainland companies.

It is irrelevant that you are an architect. You clearly do not understand the HK legal system and why it is superior to other types of legal systems. It is not without its faults, but if you want to talk about how unfair the HK legal system is, then you should probably investigate how much worse it is in other jurisdictions.
johnyuan
Common law using precedents as a guide I hope is still satisfactory in ruling never tried cases that beyond just murder or negligence committed even by the poor. I think the statement that rule of law is an outdated concept which I agree is most refreshing. Rule of law has been hijacked by the rich and privileged and politicians in Hong Kong in serving their respective need. I still hope someone can come up with a better and more useful means and way to have laws serving all. There might be more a possible chance a better concept would come from anyone other than the law sector which is a bit too protected for too long by the rule of law concept. Citing about case number is not thinking outside the box. But I am still an architect finding rule of law is an outdated concept refreshing.
blue
You didn't present anything of substance that convinces me that the rule of law is an outdated concept. You are just criticizing it without proposing a better alternative, and you accuse me of not thinking outside the box? In fact you are simply repeating yourself. You might think citing a case number is not thinking outside the box, but how else am I supposed to determine whether that court case you cited really had the ruling you claimed it did? I am hearing third hand information from you, and that is not reliable.

China doesn't have the rule of law yet, and its legal system is even more susceptible to hijacking by the rich and privileged than HK's system. China's system does not provide for judicial independence, and there have been many cases of judicial officials being bribed. Hong Kong does not have these problems.

Do I think there's room for improvement with HK's legal system? Absolutely. No legal system should stay in stasis. To the contrary, HK's legal system is always evolving and improving itself.

"I hope is still satisfactory in ruling never tried cases"

Doesn't the recent ruling on transsexual rights essentially prove your entire argument wrong with regards to HK's legal system? The courts protected a vulnerable minority and not the establishment. It proves that HK courts can and do uphold human rights. HK's track record on untested cases has been quite good actually. Do you think the mainland legal system has a better track record? Why?
johnyuan
In order to satisfy you, any news reported of an outcome of a court ruling, case number should be cited. Furthermore, law discussion should be restricted to legal sector only. I am afraid you have an air of arrogance that pretty shutting seemingly your mind up to protect your territory? For my argument, I don’t even care what you do for a living. I will pour some cold water on my head to cool off a bit if I were you?
.
waynechu
Shanghai will never replace Hong Kong as a financial hub without freedom of the press. Can you get a copy of the SCMP or Wall Street Journal in Shanghai? Not to mention the non convetability of the Yuan. The Chinese still do not understand what makes the world tick.
pangkf
Actually, Shanghai is going to exceed New York and London, but not Hong Kong because most of the Shanghaiese think that they already exceeded Hong Kong. I don't think that Hong Kong people are too self-confident and self-centred after you know more about Shanghaiese. Anyway, I agree that our HK people need to be more ambitious and progressive.
richardg23
No, your shallowness. It adds another not-so-free trade zone to hundreds already in China and is by definition an admission that Shanghai is failing to compete with HK on the same terms.
johnyuan
I agree that rule of law is an outdated concept – people are ever more educated to discern. Hong Kong makes law to protect the powerful and privileged since its colonial days. So ask whose rule of law and who should obey them? For the law society, it is not their business to make law, it was the governor and now the legislators. So having judges, barristers or even solicitors do not equate rule of law is useful to all or even beneficial if you are poor, powerless and unprivileged – that is the majority in Hong Kong. If a bus jumps a curb and crashes you while you are happened in the store, you or your family won’t get any compensation. The judge will proclaim it is an accident. It happened a decade ago in Hong Kong. Please forgive me to pour cold water on the precious few merits Hong Kong love to sing.
blue
"It happened a decade ago in Hong Kong. Please forgive me to pour cold water on the precious few merits Hong Kong love to sing."

Could you kindly cite the case number so that we can look this court case up? Otherwise all you are telling us is hearsay. Companies can be liable for accidents too.
johnyuan
What case number? I am not a police or a lawyer. The incident was reported in one or all newspapers which I read (SCMP, Standard and imail). It should be in a year since 1997. I hope you find a copy and may be justice can be had.
blue
"What case number? I am not a police or a lawyer."

Clearly you have no idea what you're blabbing about. Case numbers are a matter of public record, and you don't need to be a lawyer to read a court case. If you're going to talk about a case, then please cite the court case. Otherwise you're just talking nonsense since we can't look into the source of your claims.

You did clearly demonstrate your ability of having a zero understanding of the rule of law though.
johnyuan
In order to satisfy you, any news reported of an outcome of a court ruling, case number should be cited. Furthermore, law discussion should be restricted to legal sector only. I am afraid you have an air of arrogance that pretty shutting seemingly your mind up to protect your territory? For my argument, I don’t even care what you do for a living. I will pour some cold water on my head to cool off a bit if I were you?
SpeakFreely
Most HK people are too complacent still talking about rule of law, a very outdated concept. Yes china is lacking rule of law. So what? Vc are putting billions there n virtually zero in HK, the money do the talking mr. Hong Kong !
I spend half time in Hk n USA, what I see Hk is so much behind in technology vs US. I'm a retired tech executive, so I know what is tech. Hk is so much behind...and Hk government process is too slow too, here I can pull a building permit in a day or two. Hk is too expensive n out as we are aging fast and expensive. Please ask yourself how many new Local IPO in Hk for company made in HK of decent size in the past 10 years? Very little. What does it tell u mr. hK?
blue
What is your technical background? What did you study in university? I thought you also said you were an accountant.

Also sorry but I agree with brahardja; the rule of law is going to trump any free trade zone. Even when the business is done on the mainland, can you guess what Chinese Special Administrative Region is set as the venue for legal disputes?

Calling the rule of law an "outdated concept" pretty much proves to everyone how ignorant you really are.
johnyuan
Rule of law is an out dated concept where it is practiced in an inequitable society such as Hong Kong. It is not out of arrogance but perceptive of reality. Your support citing Hong Kong being chosen as a place for business disputes (adjucating) can’t convince me that rule of law is not partial and equitable to all who live under the ‘rule of law’. You must think and look beyond trade disputes. I wish someone can come up a better concept to replace such unreliable piece of rock to rely on. Incidentally, by profession I am an architect.
...
It was swift to become a law after I wrote to the letter column in SCMP advocating property developer must reveal and be truthful of the surrounding around the project for a potential flat buyer. Nevertheless the monthly management fee is left out as a true and right to know information – no matter how tentative it is. It must reveal at least its method. Now, rule of law in Hong Kong still favors the powerful and privileged. No? Rule of law for justice?
johnyuan
'Time is money, and we spend way too much time just talking about things like West Kowloon when other cities are already taking action and know with crystal clarity what they want to achieve.' :
The West Kowloon – ill gotten land by displacing the harbor with a big bite cutting out of it, has been over a decade weathered and escaped the fate of no more reclamation, is like being the most precious jewel left for its big size and absolute commending view. To the government and property developers their plan for its use have been crystal clear between them from the beginning that not a square inch of it should be wasted not for property development. The museum is just incidental – a speck planted as a digression and prelude to the truth of a property development mega project of the most luxury. Letting time to play out the truth hope less embarrassment of what greed for money is traded by the destruction of the harbor. Time is money indeed. But history will never forget and forgive the officials, developers and the Hong Kong silent majority heartlessly all participated in property collusion by deception and displacing the harbor with a very big bite. Make a public park to make up the lost nature not the least it belongs to every citizen. It is in your hands, Mr. CY Leung.
megafun
speaking as a migrant worker from HK, and now living near Shanghai..........don't forget labour laws and tax are very bad, when applied strictly; also the admistrative laws are obstacles which when bribes are taken out of the "smoothing" process will basically kill any business!! Imagine every business is a resturant that needs a fresh license every year, and you can compare the administrative hazzles. Has anyone cunted the number of national tax and loacl tax that is applicable for any SME??????
brahardja
Having a free trade zone alone will not be enough for Shanghai to overtake Hk. As long as the government system remains the same, there is nothing for Hong Kong to worry about. The rule of law is the strongest deterrent for global financial companies to conduct their businesses in China. Not to mention poor living conditions (pollution, substandard food safety, poor public health system).
lucifer
Dob't forget the absolute free flow of information which is key to any financial market. If information is restricted or limited, an international financial market will never take hold. Yes, everything matters to investors..everything.
babyhenry
My god that 1 Million expats living and working there must be a illussion.
BTW you are really funny when does the "rule of law" and global financial companies ever in the same stand? GFC hates or never respect the rule of law. Did you just woke up from a coma and missed the 2008 financial crisis?
SpeakFreely
Most HK people are too complacent still talking about rule of law a very outdated concept. Yes china is lacking rule of law. So what? Vc are putting billions there n virtually zero in HK, the money do the taking mr. Hong Kong !
 
 
 
 
 

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