How an EU-style common market can bring Hong Kong – and Taiwan – closer to China

Zheng Yongnian says an economic bloc of the Pearl River Delta cities would not only boost growth, but could also heal divisions and promote further integration of greater China – eventually including Taiwan

PUBLISHED : Thursday, 08 September, 2016, 4:46pm
UPDATED : Thursday, 08 September, 2016, 7:00pm

If realised, a proposed South China common market encompassing 11 cities around the Pearl River bay area, including Hong Kong, would become a major economic region in the world. It would have a gross domestic product of US$1.3 trillion, twice that of the San Francisco Bay area and close to that of the New York Bay area, and the value of its foreign trade would total US$1.5 trillion, more than three times that of the Tokyo Bay area.

With both the Hong Kong and Shenzhen stock markets playing a key role in fundraising, the region could become the largest financial centre in the world by market capitalisation.

Besides Hong Kong, the 10 other cities of the proposed common market are Guangzhou, Shenzhen, Dongguan (東莞), Zhuhai (珠海), Foshan (佛山), Jiangmen ( 江門 ), Huizhou ( 惠州 ), Zhongshan (中山), Zhaoqing ( 肇慶 ) and Macau.

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Over the past years, China has set up several free trade zones, in Guangdong, Shanghai, Fujian ( 福建 ) and Tianjin ( 天津 ). However, their development has fallen short of expectations at home and abroad. Voices sceptical of China’s opening-up policies have started to appear.

Indeed, the implementation of these policies has been far from ideal. One problem is that the free trade zones are too homogeneous, both within each zone and between them.

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But a South China common market will be characterised by the diversity that is needed for success. Grouping mainland Chinese cities with the Hong Kong and Macau special administrative regions would enable more efficient allocation of resources. The two SARs could also share their institutional strength and cultural resources, such as the rule of law, with the mainland cities. Hong Kong and Macau’s international business environments, mature legal systems and free and fair trading systems can positively influence the Pearl River Delta region, and even the rest of the country, by providing a useful reference for other cities seeking to open up, refine their legal environment and become more market-oriented.

A South China common market could also help Beijing resolve its Hong Kong and Taiwan issues.

Hong Kong was returned to China in 1997, but its development in recent years has not been what many of us had expected. The rise of the so-called “independence forces” in the city has surprised many. Though small in number, they cannot be underestimated. If mishandled, this situation will destabilise the city. Beijing has realised the severity of the problem and is trying to enhance the governance of Hong Kong via a hands-on policy. But this approach has not been effective.

The situation in Taiwan is also worrying. Hong Kong’s “one country, two systems” model was originally designed for Taiwan. However, the SAR’s development has showed that this model is not without its problems, and in fact the system holds little appeal for Taiwan.

If Beijing does not want to use violence to resolve the Taiwan and Hong Kong issues, then one option is to construct a regional system with Chinese characteristics, first for Hong Kong and Macau, then gradually applying it to Taiwan. One could call this new regional system China’s “internal European Union”.

With a common market, Hong Kong and Macau can be more effectively integrated into the national economic development landscape

Over the years, China has made great efforts to promote economic integration with Hong Kong and Taiwan. However, this integration has led to widening income inequality in both places. There’s nothing wrong with economic integration per se, of course. The problem is that the fruits of economic integration have mainly benefited a handful of rich people, while a majority in society, particularly the youth, have been disadvantaged.

The construction of a South China common market would help alleviate these problems. While approaching the Hong Kong and Taiwan issues through political means would be too sensitive, and military alternatives are irrational, China could adopt an economic and social approach, even as it makes moderate adjustments to its own political system.

The EU experience is instructive. Since its inception, the bloc has gone through many difficulties but, in general, it has been moving towards social integration through economic integration. With a common market, Hong Kong and Macau could be more effectively integrated into the national economic development landscape, creating a broader stage for the development of these two SARs while advancing their in-depth integration with the mainland.

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Through the coordination of the central government, the cities of the common market could formulate a series of agreements – even market rules and applicable laws – for economic cooperation and integration. As within the EU, China could open up the labour market and services sector on the mainland to Hong Kong and Macau, enabling the free flow of labour. The problem of youth unemployment, for one, could be solved if young people were allowed to work anywhere in the common market.

Mainland China, too, would benefit from an injection of skilled and professional labour from the two SARs, bringing its services to another level. Therefore, the free flow of labour would create a win-win situation.

Besides labour, the different cities’ housing policies could also be coordinated to enable young people who cannot afford housing in Hong Kong and Macau to buy a house or an apartment in other cities in the common market. And if land policies were also coordinated, land could be easily leased or transferred for housing construction.

Since Hong Kong may have some concerns about a proposed common market initially, the mainland could open up its markets first. By doing so, innovative young people could be drawn from Hong Kong to work on the mainland, giving full play to their creativity. Because of its size, the mainland can easily absorb the negative impact from this one-sided arrangement.

Zheng Yongnian is chairman of the academic committee of the Institute of Public Policy at the South China University of Technology in Guangzhou. This article is based on a speech he gave at a forum organised by the Guangdong provincial government in July