China’s ‘One Belt, One Road’ is the perfect stage for Hong Kong to showcase its strengths
Kevin Sneader says Hong Kong’s companies and professionals can prove the doubters wrong by grasping the opportunities offered by Xi Jinping’s initiative, with three areas in particular where their expertise can shine
The origins of the Silk Road reach back three millennia to the moment when Leizu (or Xilingshi), wife of the mythical Yellow Emperor, accidentally dropped a cocoon into a cup of hot tea.
That’s the legend, at least. We may never know exactly how the Chinese learned to cultivate the Bombyx mori silk moth. What we do know is that after the Han dynasty began to export silk in 2BC, demand for the fabric was so intense that it spurred development of a vast network of trade routes stretching from China, through India, Asia Minor, throughout Mesopotamia, to Egypt, Africa, Greece, Rome and Britain. For the next 17 centuries, until the Ottoman empire severed trade with the West in 1453, silk threads helped weave together the destinies of Europe and Asia.
The Silk Road was a conduit for much more than silk. It transmitted people, culture, religion, art, language and sometimes disease. Over the long term, then as now, connectivity and greater circulation of goods and capital brought growth, prosperity and progress.
Now President Xi Jinping ( 習近平 ) has called for a revival of this legendary network with proposals for a “Silk Road economic belt” and a “21st century maritime Silk Road”. The “belt” would include construction of an overland network of roads, rail links, energy pipelines and telecommunications ties linking China, Central Asia, the Middle East, Europe and Russia. The maritime “road” envisions connecting China’s coastal cities though the South China Sea to ports on the Indian Ocean, the Red Sea and the Mediterranean Sea, and Africa.
Xi’s “One Belt, One Road” proposal is arguably the most ambitious diplomatic programme put forward by China since the founding of the republic. All told, it encompasses 65 countries in Asia, Europe and Africa which collectively include 4.4 billion people and claim a gross domestic product of US$21 trillion. Xi hopes annual trade between China and countries along the belt and road will expand to US$2.5 trillion within a decade.
Beijing has promised to underwrite development of infrastructure in the belt and road countries through China-led multilateral institutions and state-owned Chinese firms. To that end, China has established three new financial entities – the Asian Infrastructure Investment Bank, the New Development Bank (also known as the BRICS bank), and the Silk Road infrastructure fund, funded primarily from China’s foreign reserves, with initial capital of US$40 billion.
China’s two policy banks, the China Development Bank and the China Export-Import Bank, will provide major financing, and China’s largest state-owned commercial lenders have pledged support as well.
For Hong Kong, “One Belt, One Road” offers a historic opportunity to leverage its status as China’s most cosmopolitan city – a modern financial hub combining efficient infrastructure, well-regulated markets and Western-style legal institutions with deep understanding of Chinese culture and business practices.
Some observers doubt Hong Kong can play a meaningful role in the belt and road programme. Sceptics say local firms are ill-suited to participate in projects in Central Asia, Africa or the Middle East, where they lack language skills or operating experience. Others question the ability of Hong Kong firms to compete in emerging markets.
We see far more cause for optimism. Hong Kong firms have extensive operating experience along key stretches of the maritime “road”, particularly in Southeast Asia. And Hong Kong’s strengths in finance, logistics and trade could play an important role in supporting many aspects of the initiative.
Hong Kong is the world’s leading offshore renminbi market and gateway for more than half the mainland’s outward investment. Mainland companies account for half the market capitalisation of Hong Kong’s stock exchange, which offers direct two-way access to exchanges in Shanghai and Shenzhen. The city is home to hundreds of thousands of educated, multilingual professionals in financial services, and many more in fields like accounting, information technology, engineering, architecture and construction.
Moreover, Hong Kong boasts world-class infrastructure companies, adept at property development, telecommunications and mass transit. The city has the world’s fifth busiest container port, and its airport is the world’s busiest air cargo hub.
We see three broad areas in which Hong Kong could contribute to the belt and road initiatives’ success.
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One, raising capital. While China has promised its public banks will take the lead in underwriting the projects, the vast scale of the initiative leaves ample opportunity for private financing. The Asian Development Bank estimates a funding shortfall for Asian infrastructure projects of US$750 billion a year through 2020. Hong Kong, as one of the world’s three great financial hubs, should play a leading role in raising additional capital. Hong Kong can help companies investing in belt and road projects securitise debt and manage risks, and offers a natural platform for governance and arbitration.
Two, building infrastructure. Belt and road projects promise huge opportunities for Hong Kong firms in sectors such as property development, construction, mass transit, energy and telecommunications. Hong Kong firms in these sectors – including the MTR Corp, the city’s railway operator; CLP Group, the electric power provider; and Hong Kong and China Gas Co – have well-deserved reputations for safety, efficiency and good governance. Many have successful operations overseas, in both emerging and developed markets.
All Hong Kong firms with infrastructure expertise should view the belt and road initiative as a once-in-a-generation chance for global expansion and actively consider what help they need from Beijing to contribute successfully.
Hong Kong could also act as convenor – bringing people together, encouraging the exchange of knowledge and ideas, showcasing best practices for infrastructure building and promoting universal technical standards. This week’s Belt and Road Summit, hosted by the Hong Kong Trade and Development Council, is an excellent start, and should be the first of many more similar events. China should consider convening a global “Infrastructure Expo” here that would achieve for infrastructure building in the belt and road countries what the Great Exhibition of 1851 in England did for industrialisation.
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Third, exporting services. Hong Kong, with its globally recognised universities, can help to promote understanding among belt and road countries, and equip the next generation of managers, technicians, engineers and architects with the skills they’ll need to ensure the region’s new infrastructure functions safely and efficiently.
More broadly, Hong Kong can help to export to belt and road countries its systems and know-how for project management, accounting and legal compliance. Visitors invariably marvel at how well this city functions – and with good reason. For all its challenges, Hong Kong is a city that works. Business and government leaders should harness the power of that brand and export it to countries with which the mainland has committed to expand economic ties.
Hong Kong has always defied those who dismissed its ability to adapt to shifts in the global market. Beijing’s determination to revive trading roads spanning Europe in Asia provides a historic chance for Hong Kong to prove its detractors wrong again.
Kevin Sneader is chairman of McKinsey & Company, Asia