The vital connection between Europe and Hong Kong

José Manuel Barroso says Europe's post-crisis reform has made its economy more competitive, readying it for deeper co-operation with Hong Kong and the region for sustainable growth

PUBLISHED : Thursday, 28 November, 2013, 6:53pm
UPDATED : Friday, 29 November, 2013, 3:06am

This year is precisely 500 years after the first European contact with Hong Kong, when a compatriot of mine, Jorge Álvares, arrived in 1513. I know how important Hong Kong is in the relationship between Asia and Europe.

Together, Europe and Asia represent half the world's population, more than half of the world's gross domestic product and 55 per cent of world trade. These impressive figures show the centrality of Europe-Asia relations. Europe has a stake in Asia's prosperity as much as Asia has a stake in Europe's prosperity.

One of the pillars of this is the growing EU-China relationship. We now have dialogue in almost all areas relevant to each other's development. And, at the very heart, is our support for the "one country, two systems" principle and our unique relations with the two special administrative regions, Hong Kong and Macau.

Relations between Hong Kong and Europe are firmly forward-looking. European companies play a key role in Hong Kong's economy. Of the 2,000 European firms in the city, no fewer than 453 have their regional headquarters here, outnumbering both American and Japanese companies.

European investments keep coming in; European products are in demand and European citizens want to come here, too. This all shows we are excited about Hong Kong's potential in the years to come.

Our relationship is based on shared interests, shared prospects and a shared view on basic principles such as free trade, transparency and the rule of law. With business communities on both sides, we want to continue to strengthen them.

Hong Kong is Europe's 20th largest trading partner for trade in goods. For trade in services, Hong Kong is our most important partner in Asia (after China, Japan and Singapore), with a strong focus on financial services, transport and business.

Hong Kong also contributes greatly to the European economy as a large investor, ranking 8th in terms of stocks and 6th in terms of flows in 2011. This is a prime example of today's global economy, interconnected by veins and arteries pumping trade and investment flows from one end of the world to the other and back. The EU-Hong Kong connection plays a key role, and Hong Kong is often our companies' starting point for activities in Asia.

As our bond with Hong Kong proves, investment is a natural counterpart of trade

Our trade agenda in the region is very ambitious. We have concluded free-trade agreement negotiations with South Korea and Singapore, and we are negotiating with other Asean partners like Malaysia, Thailand and Vietnam. Negotiations with India continue, and we have launched negotiations with Japan. Like Hong Kong, we believe trade liberalisation is in our own best interest.

At last week's EU-China summit, we formally launched negotiations for a comprehensive investment agreement covering both investment protection and market access. The negotiations will remove restrictions and progressively liberalise investment, leading towards reciprocity in access for European and Chinese investors to each other's markets. This is an important step in the evolution of our economic relationship. With European investments in China representing only 2 per cent of our worldwide foreign direct investment, and Chinese FDI to the European Union standing at only 1 per cent of total inflows, there is huge potential. As our bond with Hong Kong proves, investment is a natural counterpart of trade.

As for Europe, we cannot ignore voices that cast doubt on Europe's own future prospects. I believe these opinions stem from a distorted, outdated and often downright wrong perspective of what the European Union has achieved over the past months and years in terms of our economic fundamentals and political progress.

Admittedly our economy was hit particularly hard by the global economic downturn and we cannot say we are out of the crisis, also given the high unemployment figures. Yet, as an economic bloc, we will emerge stronger, more united and more competitive. The crisis has forced us to reassess our economic policies, fundamentally revise our public finances and deepen our economic and monetary union in a way that we were unable to do before.

In Europe, growth is on the rise and expected to gradually regain traction. Our economic potential remains huge. Europe is the largest economy in the world. With over 500 million consumers and an average per capita GDP of €25,000 (HK$263,000), it represents an economy of some €12.6 trillion. Europe has a manufacturing trade surplus of almost €300 billion. Our services surplus has expanded to over €100 billion, and our agricultural trade has shifted from a deficit to a surplus.

We maintain our global leadership in high-value-added products and in hi-tech, and as the world's largest importer of both manufactured goods and services. We still have the largest stocks of foreign direct investment abroad, just as we are the largest host of foreign direct investment in the world.

The EU is now better equipped to deal with challenges arising from its place at the heart of the global economy. It has matched its economic interdependence with political integration. Our growth model is more sustainable now than before. Because of market pressure and new rules of governance in the EU, many of our countries are implementing at times extremely painful reforms. But they are reforms for greater competitiveness.

For all those reasons, Europe will continue to be an indispensable partner for an ambitious and highly developed economy such as Hong Kong. If there is one thing that unites us, despite our many differences, it is the belief that openness is beneficial to all. Political openness and transparency are not always the easiest, but are certainly the most sustainable way to develop our societies, and we will continue to co-operate in promoting this view.

Hong Kong hosts a vibrant civil society and it serves fundamental freedoms. The judiciary and legal professions remain strong pillars upholding the rule of law and zealously guarding its status.

Hong Kong was always at the forefront of establishment of rule of law in this part of the world. That is also why the EU established a diplomatic mission in the city in November 1993.

I have no doubt that Hong Kong will remain a place of unparalleled action and fascination for decades to come - a city that never sleeps, because it is always turning to the rest of the world. And one should have no doubt about Europe's determination to be part of the continuous success story that is Hong Kong.

José Manuel Barroso is president of the European Commission. This is an edited version of a speech delivered at a recent European Chamber of Commerce event in Hong Kong