Jake's View

Belt and Road middleman role is a dead end for Hong Kong

The future doesn’t lie in things we used to do or that government wants us to do, so Belt and Road is a non-starter and middleman is out

PUBLISHED : Monday, 08 May, 2017, 3:35pm
UPDATED : Tuesday, 09 May, 2017, 10:38am

In a rare interview, Victor Fung Kwok-king, a respected businessman ... told the Post “Hong Kong needs to work very hard on its traditional role of being a middleman between the West and the mainland in order to grab the business opportunities from the ‘Belt and Road Initiative’ ”.

SCMP, May 8

Let’s get something straight right away about this Belt and Road business. It still has some mileage left in it for political bluster and toadying but otherwise it’s a dead one. Let’s drop it.

It only came into being three years ago because the then president of the United States, Barack Obama, was proposing to exclude China from a Pacific regional trade union that he was talking of setting up.

In any event it was the US that excluded itself from this peculiar institution. A new president decided that trade agreements are bad for trade. Yes, it’s a story for the comic books, strange but true.

By that time, however, President Xi Jinping had already come up with his response to this initiative. Exclude us? Well, then we’ll exclude you. We’ll go with the “Stans” and some of these African places. They weren’t all losers when we last dealt with them hundreds of years ago.

How Trump gave China’s ‘Belt and Road’ scheme a boost

But if not quite losers they are certainly not the world’s new big markets for what is now the world’s biggest exporter. Belt and Road was a reactive measure to events that never took place anyway. Cold reality has now set in. This is not where the economy is going. China will not build its future on Belt and Road.

One difficulty, however, is that when Beijing starts its minions talking about its latest thing, it can’t always make them stop. They just go on and on repeating the mantra. Our chief executive Leung Chun-ying is a good example. I would have thought Victor Fung knew better.

I also would have thought he had by now recognised what has happened to Hong Kong’s “traditional role of being a middleman”.

Middleman is a nineteenth century concept. Back then buyer and seller across the world could not meet each other, let alone talk to each other or recognise each other’s ways of doing business. Someone was required between the two.

It is not so any longer. Buyer and seller have long turned to dealing directly with each other. A classic example is the way that Wal-Mart eliminated middlemen in products like toothpaste. Wal-Mart not only saved money in a tight margin business but found demand far less volatile.

Victor Fung is notable for trying in more recent years to resist the trend by making the role of middleman evolve into a more multi-product, multi-customer business through his company, Li & Fung. Unfortunately, this has not always worked well. The tide is against him.

And it is against Hong Kong trying to revive a middleman role for itself. This is not where our future lies.

It probably lies where it has always been. Hong Kong thrives by doing for China what China cannot or, for reasons of ideology, will not do itself and then moving on to something else when China can and will do it.

Hong Kong thrives by doing for China what China cannot or, for reasons of ideology, will not do itself

This is how our economy made its transitions from shipping to textiles and then to financial services, slowed down a little in each of these transitions by government efforts to stay in the past.

Given present trends of tightened control by Beijing in the mainland, I think the future probably now beckons us to rule of law areas such as commercial dispute settlement as well as to money laundering (always a big business for us) and perhaps to freedom of expression fields such as the arts.

That’s a guess. What my crystal ball tells me for a certainty, however, is that the future does not lie in things we used to do or that government wants us to do. Belt and Road is a non-starter and middleman is out.

I also do not share Victor Fung’s pessimism about our “inward focus”, “going backwards” and “downward spiral”.

That’s just Shanghai talk and they never stop talking it up there about Hong Kong. It’s envy talking. They don’t understand what makes this place such a success and I doubt they ever will.