Closer ties with mainland China are good for Hong Kong business
G. Bin Zhao says by all yardsticks, the economic integration of Hong Kong and the mainland is favourable for our competitiveness
Not long ago, Premier Li Keqiang (李克強) approved a document from nine provinces promoting pan-PRD (Pearl River Delta) cooperation at a higher level, involving more areas and in a wider range. Hong Kong and Macau were also included, and the overall programme was named the “9+2 regional development concept”. Last week, at the Boao Forum for Asia, Premier Li again mentioned that we would launch the Shanghai-Hong Kong Stock Connect this year.
These initiatives show that when making development plans, the central government has thoughtfully considered the position of the Hong Kong and Macau SARs, although they are not fully included in the 13th five-year plan owing to the “one country, two systems” policy.
During the Boao Forum, I took part in a meeting on the Asia Competitiveness Annual Report 2016, and learned that Hong Kong continues to rank second among 37 Asian economies. The report notes that Hong Kong has efficient, stable and reliable business systems and financial markets, as well as world-class transport infrastructure and high-quality information networks.
There is no doubt that Hong Kong remains one of the most competitive economies in the world. So how can it remain competitive and achieve greater economic development? It might be a good decision to strengthen economic integration with the mainland, and make good use of mechanisms such as the 9+2 regional development initiative.
Mainland residents generally have a friendly feeling for people in Hong Kong, which provides a unique advantage for the SAR. The city’s entertainment industry once took the lead in Asia, and influenced several generations of people on the mainland. In addition to shopping, it is one important reason countless people from the mainland visit Hong Kong. Some people think that the entertainment industry is in decline, but I disagree. Hong Kong’s entertainment industry is not sinking, but instead is typically representative of economic integration with the mainland.
Witness the sensation caused by the grand wedding ceremony of Huang Xiaoming and Angelababy in Shanghai last year. When Hong Kong and the mainland work together, they can produce greater value. As another example, The Mermaid harvested box-office gold over the Lunar New Year as many mainland people regard director Stephen Chow with special esteem. No one can clearly say whether this movie should be classified as a Hong Kong film or not, and maybe few people care. In fact, the entertainment industry in Hong Kong and the mainland have fused together to become one of the foundations for the development of the Chinese film and television industry, allowing Hong Kong artists to benefit considerably in the process.
I believe that the economic integration of Hong Kong and the mainland is an irreversible trend, and following the trend will be more favourable for Hong Kong.
At its peak, Hong Kong’s gross domestic product reached one quarter that of the mainland. In 1997, when it returned to China, its GDP was about 16 per cent of Chinese GDP, while by 2015 this proportion had dropped to 2.6 per cent, behind Shanghai, Beijing and Guangzhou. Undoubtedly, because Hong Kong’s population is small compared with these cities, the per capita GDP is much higher than all the mainland cities.
Whatever the comparisons, it is indisputable that economic development in the mainland is faster than in Hong Kong. It is not because Hong Kong has made no progress, but because the mainland is developing too fast. So, we have to ask, though the “one country, two systems” policy is in place, why doesn’t Hong Kong’s economic growth rate match that of the mainland after nearly 20 years since its return?
The simplest reason is that developing economies generally have higher growth rates than developed economies because their industrial foundations are weak and improvements to infrastructure can support rapid economic development. In addition, there are the following reasons.
First, Hong Kong’s high real estate prices constrict economic development and high housing prices lead to many serious problems. For example, limited living space directly affects the quality of life and the happiness levels of many people, and the stress of burdensome mortgages allow only a very small number of people the opportunity to start a business.
Second, the lack of integration with the mainland poses a disadvantage in competing with Shanghai and Shenzhen, and in the long run, Hong Kong is likely to be marginalised.
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Taking personnel mobility and transport as an example, first-tier cities in the mainland can easily attract a large amount of cheap labour and professionals to meet the demands of both the low and high ends of economic development. Furthermore, the current exit-entry permit for travelling to and from Hong Kong and Macau is valid for only three months, which may seriously hinder the free movement of personnel, especially when we consider that the United States has issued 10-year multiple entry visas to Chinese citizens.
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Another example is that flights from major cities to Hong Kong travel the same distance as to Shenzhen, but the price difference is significant. If a businessperson can deal with his business in a first-tier city on the mainland, who would be willing to take the time to apply for an exit-entry permit and pay the extra money to go to Hong Kong?
Third, the lack of innovation limits the economic vitality of Hong Kong. This is evident from the Forbes list of the richest Chinese which shows that both the number of Hong Kong tycoons and changes in the industry are stable while the number of rich in the mainland is not only increasing quickly, but they are also more diverse and younger. As the Asia Competitiveness Annual Report also points out, Hong Kong needs to improve its access to higher education and innovation capability to create a real innovation-driven economy.
The 9+2 regional development concept is unlikely to fundamentally change the slow development of Hong Kong’s economy. Unless Hong Kong is determined to further integrate its development with the mainland, it may not have a similar growth rate of about 6.5 per cent in the five-year plan period from 2016 to 2020. As a Chinese idiom says, lose at sunrise and gain at sunset.
G. Bin Zhao is executive editor at China’s Economy & Policy, and co-founder of Gateway International Group, a global China consulting firm