The rise of mainland cities and Beijing's opening up of the capital account does not spell doom for Hong Kong, says Norman Chan Tak-lam, chief executive of the city's de facto central bank.
"The closer Hong Kong develops ties with mainland China, the greater the risk to Hong Kong" is based on the assumption that when Hong Kong is "mainlandised" and loses its uniqueness vis-à-vis other mainland cities, it would lose its competitiveness, he wrote on the Hong Kong Monetary Authority website yesterday. "Or, put another way, our future is doomed."
Another "risk" cited by critics, said Chan, is that Hong Kong is on "borrowed time" in its role as an international financial centre as the mainland is yet to open up its capital account, forcing international firms to use Hong Kong as a stepping stone to enter the mainland market. "Indeed, on the trade front, there were many people who could only see a doomed future for Hong Kong as new port facilities began springing up on the mainland," Chan wrote, refuting the view with statistics.
The mainland's trade volume grew to US$4 trillion last year, almost eight times from 2000. Over the same period, re-exports from Hong Kong rose 1.5 times to US$450 billion.
Offshore trade grew even faster, Chan pointed out, with the value of goods handled by Hong Kong firms reaching US$520 billion in 2012. The gross margin of offshore trade doubled between 2000 and 2012 to US$35 billion.
As the mainland opens up its market incrementally through steps like internationalising the yuan since 2009, far from being hurt, Hong Kong has benefited by emerging as a leading offshore yuan trading centre.
Beijing's opening up of the capital account would allow mainland individuals and companies to invest in Hong Kong, such as through the Shanghai-Hong Kong stock connect scheme from October that would benefit Hong Kong.
"Deposits on the mainland now total 110 trillion yuan (HK$138.2 trillion) while total assets of the banking system amount to 160 trillion yuan," Chan wrote.
"As the capital account continues to liberalise, creating the necessary policy headroom for two-way fund flows, banks in Hong Kong will be able to explore and take advantage of the countless business opportunities in this huge onshore market."