Hong Kong is in prime position to benefit from China’s one belt, one road economic strategy

As a major connector in the region and globally, the city can capitalise on the opportunities presented by the Silk Road Initiative

PUBLISHED : Tuesday, 21 June, 2016, 2:08pm
UPDATED : Tuesday, 21 June, 2016, 2:08pm

With its bold vision and extensive geographical reach, China’s one belt, one road initiative has the scope to transform patterns of trade, investment and thinking over the coming decades.

So far, all the talk suggests Hong Kong is in prime position to play a full part in whatever transpires and will be able to benefit accordingly.

However, it is equally true that any industry, multinational, consultancy, entrepreneur or service provider with hopes of capitalising on the opportunities can’t simply sit and wait.

Contracts will not just flow their way. Hong Kong’s banks and businesses will have to prove they are up to the challenge and be ready to fight for every dollar.

“Many Hong Kong contractors are ranked very high on a global scale and have the qualities and resources to pursue infrastructure opportunities along the belt and road,” says Agnes Chan, Hong Kong and Macau managing partner for EY. “As a ‘superconnector’, Hong Kong is also well-placed to be a platform for financing. For example, the sector’s experience can be utilised to raise funds for the Asian Infrastructure Investment Bank (AIIB) via bond offerings, developing yuan products, or providing project financing for individual companies. This will help boost Hong Kong’s international status as a fund-raising centre and an offshore hub for trading renminbi.”

Having long acted as a bridgehead for mainland China to the rest of the world, the essential task now is to redirect as necessary, deploying existing skills and professional expertise in markets which remain largely untouched or untapped.

As a ‘superconnector’, Hong Kong is also well-placed to be a platform for financing
Agnes Chan, Hong Kong and Macau managing partner, EY

And selling what Hong Kong can offer requires new ideas, detailed planning and specific action. The city’s wealth of legal, financial and engineering know-how, its global networks, entrepreneurial spirit and all-round efficiency are a given. Impressing in future will take something more.

“For example,as an investment platform, Hong Kong’s treaty network is still not comprehensive enough,” Chan says.

“We need to speed up the pace in concluding more double-taxation treaties with other countries in the belt and road region.”

In today’s digital world, she adds, it is also important to do more to develop and retain talent. At a time of increasing mobility and changing expectations about the work in general and the workplace in particular, business models, accepted practices, colla-boration and the presumed appeal of overseas assignments require regular review.

And in other respects, while Hong Kong as a whole can clearly claim a good under-standing of China, its economic strengths and investment environment, the same can hardly be said of countries such as Kazakhstan, Tajikistan and Turkmenistan.

“How well do we know them?” Chan says. “We need a better understanding and a strategy to prioritise the roles of the business sector and the government. Hong Kong has to be innovative, leverage its strengths, and make full use of its soft power to develop a multipronged approach and make our ‘systems’ even more user-friendly and efficient.”

Public-private partnerships (PPP) may well point the way, where government is the enabler and private sector companies then get the job done. The model has a track record in areas like transport, infrastructure and even technology.

“Take the Silk Road Fund as an example,” Chan says. “It is state-owned money used to foster investment along the belt and road, allowing corporate investors to reduce their risks and be more courageous in their plans.”

Julian Vella, KPMG’s Asia-Pacific regional head for global infrastructure, notes that there are already significant PPP opportunities in China’s domestic market and growing demand for information about different models.

“Outbound PPPs in overseas markets are a very active part of our business,” Vella says. “The key is how risk can be shared between public and private sectors and how to reflect this in financing options, but we see real opportunities in [newer] markets.”

For Andrew Weir, KPMG’s regional senior partner in Hong Kong and the firm’s global chair of real estate and construction, there is a clear role to play as a service centre for the offshore aspects of the belt and road scheme, but there is no reason to stop there.

“This is such a broad economic development and policy initiative, there are many cross-sector aspects and opportunities,” Weir says. “Companies need to look closely at how best to position themselves and how to contribute.”

In principle, it is not just the big names in financing, construction and legal services that stand to benefit. Professionals in diverse areas like design, quality control, high-tech electronics and arbitration should also be assessing the possibilities.

“As businesses, we need to articulate and share Hong Kong’s already strong story and major role as a connector in the region and globally,” Weir says. “Some practical matters are the ongoing development of tax treaties and information sharing, as well as understanding the emerging trade and investment agreements.”