New free-trade zones force Hong Kong to sharpen its game

City has to devise ways to fend off challenge from the special economic areas to its status as financial hub and gateway to China

PUBLISHED : Thursday, 12 September, 2013, 12:00am
UPDATED : Thursday, 12 September, 2013, 3:28am

The race to become a free-trade zone among mainland cities raises a tough question for Hong Kong: how to raise its game.

The competition for greater economic freedom has spread from Shanghai to Guangdong's Hengqin, Qianhai and Nansha to Tianjin, Shandong and Fujian.

So far, the central government has only cleared Shanghai for the coveted position, in an uncharacteristically fast approval process that took less than three months.

Analysts and accountants say the speed at which Shanghai was granted the status shows the government's strong determination to spur the development of provincial economies and to gradually liberalise the capital account.

They say one way for Hong Kong to retain its dual status as a global financial hub and the gateway to the mainland is by sharpening its tools to facilitate yuan flow across the border.

The Shanghai model, if successful, will be replicated in other cities, in a strategy the State Council mapped out in its five-year plan to 2015.

Likening the mainland cities and Hong Kong to a class of star students in perpetual competition, Deloitte tax and business advisory partner Caesar Wong said Hong Kong must carve out a well devised plan for its development for the next decade and beyond.

"Hong Kong has been a top student for years," Wong said. "But the risks of other students catching up are growing so much and so fast that it has to plan beyond the next decade and take prompt actions."

He said the way out was deeper and greater integration with Guangdong by participating in the planned development of the new economic zones in Hengqin, Qianhai and Nansha.

"Hong Kong should make good use of its strength in financial services, logistics and free flow of information and IT services," Wong said. "This is something other mainland cities can't match in the near future."

Pansy Ho Chiu-king, the managing director of transport and property group Shun Tak, said Hong Kong could no longer go it alone in economic development, particularly in view of 2015, when the Hong Kong-Zhuhai-Macau bridge would be ready.

"Should Hong Kong just remain as what it is and do nothing?" Ho said. "Of course not, it has to think further ahead for a time when the geographic differences are minimised and traffic flow in the Pearl River Delta intensifies as a result of more convenient transport links."

ANZ economists said in a report Hong Kong would need to be proactive and revamp itself by reducing business costs, upgrading physical and soft infrastructure, maintaining political stability, and enhancing administrative efficiency.

Fang Zhou, an assistant chief research officer at the One Country Two Systems Research Institute, said the city should expand the variety of yuan financial products and strengthen the stock exchange as a platform for mainland companies to list.

"Hong Kong can complement the new zones in Guangdong," Fang said. "It should devise a mechanism to help yuan flow back to the mainland."

Fifteen Hong Kong banks have been allowed to offer a combined two billion yuan (HK$2.5 billion) in loans to companies in Qianhai to help fund the new economic zone, a move seen as encouraging yuan flow back to the mainland.

As of the end of June, Hong Kong had amassed the world's biggest pool of yuan deposits outside the mainland, at 698 billion yuan, followed by Singapore with 100 billion yuan, Taiwan 71 billion yuan and London 12 billion yuan, according to UBS.

These cities are jockeying for a bigger slice of the yuan business and to vie as a global offshore yuan settlement centre. The Shanghai free-trade zone, designed to test the viability of freer yuan movement, would also be a contender for that position.