Hong Kong can benefit from changing mainland economy

The economic relationship between Hong Kong and the mainland has advanced so much - and taken on so many new dimensions - that it's time to take another look at the way we assess the city's future.

While Hong Kong has long flourished as a gateway to China, what is changing is that the goods, services and currencies that move through this gateway in both directions have become more diverse, mobile and sophisticated. At the same time, the city is providing a controlled environment in which Beijing can test and fine-tune its plans to liberalise its own financial system.

All this will create a range of business opportunities, especially in finance, tourism, retail sales, trade and property. But, first, some numbers. We estimate that in less than three years, half of Hong Kong's economy will be supported by its links to mainland China, up from a third today. By 2020, as much as 70 per cent will be attributable to the mainland.

Tourist arrivals will also increase. For every mainland Chinese who visits Singapore or New York today, there are 20 or more who come to Hong Kong. In the first 11 months of 2012, 31 million mainlanders visited Hong Kong, up from 28 million in 2011. By 2015, we expect this number to rise to 50 million, generating spending of US$55 billion, equivalent to a third of the city's gross domestic product.

In the finance sector, Hong Kong is exceptionally well placed to benefit from China's financial reforms such as the internationalisation of the renminbi. The city has the world's largest offshore renminbi market thanks to a huge pool of renminbi liquidity in its banking system and financial market. This new market has created a whole new range of products (such as dim sum bonds), with Hong Kong dominating renminbi trade settlement flows and global offshore renminbi transactions.

A second area of opportunity lies in serving the growing needs of China's emerging middle class. This group is accumulating wealth fast and, at over 300 million and rising, is hungry for opportunities to diversify investments internationally, beyond the Hong Kong property market.

Meanwhile, mainland tourism is the hand that keeps on giving. Ever since the introduction of the individual visit scheme in 2003, Hong Kong has been the destination of choice for outbound mainland visitors. The numbers tell the story. Mainland Chinese accounted for 72 per cent of total visitors to Hong Kong in the first 11 months of 2012, up from 67 per cent in 2011 and 29 per cent in 2000. Globally, Hong Kong ranks 10th in international tourism receipts; in per capita terms, it ranks second.