Hong Kong plays catch up in Asean after two decades of wasted opportunity
Back in the 1980s, as a young Financial Times correspondent based in Hong Kong and wrestling with the challenge of understanding what was going on in China as it emerged from its hermitage years, I fought constant battles with my bosses back in London.
I was fighting to get them to devote more manpower, more attention and more newspaper space to what I saw as hugely significant shifts occurring in the world economy, driven by China’s decision to re-engage the world.
My battles were in vain. It took until the 1990s for the FT, and other western publications, to “pivot” to Asia – and that was more driven by political fascination with the 1997 transfer of sovereignty that the tectonic upheavals occurring economically.
Why the deaf ears? Because at that time, the FT and most of Britain’s businesses were preoccupied with positioning forcefully in a rapidly unifying Europe. For the FT there was a particular concern to make sure the rapidly-internationalising Wall Street Journal did not capture leadership among international business readers interested in Europe – regarded as the UK’s “back door” market.
For most of corporate Europe at the time, Asian developments were ignored as companies manoeuvred to capture market share across Europe’s market that was then about 300 million strong. It provided my first practical introduction to the reality that even the most competent management teams had limited bandwidth, and that energy being focused on one set of priorities – in this case opportunities in Europe – must inevitably be at the expense of others – like opportunities in Asia.
I have long believed that Europe’s companies have paid a large and permanent price for that neglect of Asia. They have recently tried to catch up, but all punch below their weight compared with American, and of course Japanese and Korean companies, which spent their 1980s focusing on, and capturing opportunities in a rapidly changing China.
In Hong Kong through this time we have made an identical mistake. We have been so obsessed with ensuring we lead the pack in capturing opportunities in an emerging China that our government, and our companies have ignored changes – and opportunities – in Southeast Asia, in particular the Asean grouping.
Just as Europe’s companies left US and Japanese companies to lead the charge in China, so Hong Kong companies left Asean’s economies to Singapore. Rather condescendingly – because we believed Chinese opportunities offered by far the biggest prize – we left Singapore to make what it could of what we believed were a grab-bag of second class opportunities. Of course, this does not mean that the 10 Asean markets were wholly ignored. Simply, we have punched far beneath our weight.
Perhaps in the 1980s, with the hugely diverse Asean region still powerfully fragmented and in conflict, and Asean as an institution providing much less coherence, that condescending view might have been justified. But in reality, for many years this has no longer been true, and we have been so intensely focused on the mainland that we have only recently begun to notice that we have missed a trick.
With a perverse irony, it seems to have been Beijing that alerted us to the important opportunities we were missing. We should have noticed back in 2002 when China first began negotiations on a Free Trade Agreement with Asean. But we were supinely indifferent.
By the time Hong Kong companies finally realised a major error had been made, and that we should have been negotiating alongside Beijing for an FTA that included us, it was already too late. When the China-Asean FTA was finally agreed in 2010, we were left out in the cold. Beijing had cut a deal that for many south east Asian companies removed any need to channel their China business through Hong Kong.
The second big signal was Xi Jinping’s Belt and Road initiative, unveiled in 2013. If Beijing was giving such priority to building infrastructure links into the Asean region, why were we not in the vanguard? Formal negotiations on a specific Hong Kong-Asean FTA began the following year, after efforts to “grandfather” us into the original China-Asean deal came to nought.
To be fair to the Hong Kong administration, and to the Trade Development Council working alongside, there has been a massive effort since then to make amends. It is an illustration of how painstakingly slow trade negotiations can be that it has taken four years to finalise our deal, quietly announced a weekend ago (and formally to be signed with greater fanfare at Asean’s 50th Anniversary summit in Manila at the end of the year).
The big Belt and Road conference at the Hong Kong Convention Centre last Monday provided a good illustration of how much effort is now being put into developing Hong Kong’s engagement with the 10 Asean economies. Until recently, we had just one Economic and Trade Office (ETO, equivalent to a Hong Kong consulate abroad) in the Asean region – in Singapore. Now we have added Jakarta, and are discussing one in Bangkok. At last we are getting serious about an increasingly prosperous and integrated region of more than 600 million people.
Trade has grown so strongly that Asean is today Hong Kong’s second largest market, behind China, but overtaking the European Union and the US. Total merchandise trade amounted in 2016 to HK$833 billion (US$106.5 billion), with services trade amounting to HK$121 billion. Asean still ranks just 6th as a destination for Hong Kong investment – with a stock of HK$218 billion at the end of 2015 – but this will rapidly change as Belt and Road investments gather momentum.
Alongside the decision to get serious about Southeast Asia is also a decision to get serious about free trade agreements. Apart from Hong Kong’s Closer Economic Partnership Arrangement with China in 2003, Hong Kong had up until the Asean FTA signed just three other deals – New Zealand, Chile and the European Free Trade Association (EFTA). Compare that to Singapore’s 20 deals. We are also currently negotiating with Australia, and the Lilliputian Georgian and Maldivian governments. We are also apparently talking to Macau.
I can’t see anything enormous arising from deals with Georgia, the Maldives or Macau, but Australia could be significant, and Asean is obviously massively important. It may take us a long time to begin to punch our weight in Asean’s economies, but hopefully in due course we can make amends for two decades of wasted opportunity.
David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view