Beyond the trade war, Hong Kong should see a fortune waiting to be made in emerging markets

Christine Loh says the trade war is taking attention away from the new opportunities opening up in the BRICS economies, and China’s own belt and road and Greater Bay Area plans. Hong Kong should not miss out

PUBLISHED : Tuesday, 21 August, 2018, 2:02am
UPDATED : Friday, 31 August, 2018, 3:36pm

The ongoing US-ignited trade war is the main spectacle on the global stage. There is more going on at the margins, however, and Hong Kong should take note. Important new networks and avenues for new economic activities are emerging.

The tariffs – imposed first by the US and then by its trading partners in retaliation – are starting to bite. Thankfully, the US and the European Union have agreed not to make things worse for now.

However, the same cannot be said for the US-China punch-up. As in a boxing match, both sides are delivering punches that hurt. But unlike the sport, where only two boxers are in the ring, trade tariffs affect countless businesses, industries and economies, especially when a very large number of items are involved.

Go through the list of these items and the trade war becomes real for ordinary folk. Americans will pay more for many consumer goods, as many of them are imported from China, while the Chinese will pay more for many types of US-imported food.

Businesses face greater challenges still. The list includes agricultural, energy and industrial products. Prices are immediately affected, and there is a scramble for alternative markets for both buyers and sellers. There may also be cash flow problems, which is why the US government is providing a relief package of up to US$12 billion for its farming sector.

Watch: Chinese meat importers look elsewhere

The US plan to fight China’s ascent in Asia takes shape

Hectic diplomacy is taking place. In the past few weeks, the leaders of the countries affected by the trade war have been meeting and speaking to one another. The most prominent event where multilateral and bilateral discussions took place was at the BRICS summit held in Johannesburg at the end of July.

BRICS members – Brazil, Russia, India, China and South Africa – are the largest countries among developing economies, with each being the dominant regional power. They came together a decade ago when their rising economic strength began to outpace their influence within traditional international institutions such as the World Bank and International Monetary Fund.

BRICS members not only aim to increase trade among themselves, they also want to expand trade with others within their spheres. At this year’s summit, the organisers invited 21 other countries to join the discussion in a “BRICS Plus” session on cooperation between developing economies.

Against the backdrop of a trade war, the theme of the summit was “collaboration for inclusive growth and shared prosperity for the fourth industrial revolution”. The title was no doubt chosen with the US in mind, as it emphasised collaboration and benefit-sharing in a fast-changing world. The weaker members want to be a part of the technology and industries of the future, too.

China, India and Russia each has capabilities in the technological revolution taking place, where computing, science and engineering prowess are key. China has perhaps gone the furthest in crafting explicit plans to support its “Made in China 2025” push: it wants to be a leader in the industries of the future, including information technology, robotics, artificial intelligence and advanced manufacturing.

Indeed, it is the “Made in China 2025” plan that worries the American establishment. It has been described by US trade officials as an “audacious” blueprint to dominate emerging technology industries, and if China were top dog in these areas, it would be “bad for America”. US military officials, likewise, see China becoming “the greatest threat” by 2025, as these technologies have defence implications. According to the White House trade adviser, the new tariffs on imports from China are seen as a “shield” against Chinese “aggression”.

Watch: What’s the beef with ‘Made in China 2025’?

Relax, America: state power isn’t the driver of Chinese tech advances

Hong Kong should pay attention to the emerging new alliances to ensure it is prepared for the risks and opportunities arising from them. When we take a longer view, it seems clear that the BRICS’ economic engine is set to become much more important in international business than the US and European economies, since the former are expanding markets. The value of South-South trade already exceeds North-South trade by some US$2 trillion.

It makes sense for Hong Kong to take the Greater Bay Area plan and the Belt and Road Initiative seriously. The former provides opportunities to find niches in technology and innovation with Shenzhen – China’s “Silicon Valley” – while the latter is a national effort to take its infrastructure building and other capabilities beyond borders.

Watch: Hong Kong lawmakers quizzed on Greater Bay Area

‘One country, two systems’ delivers the best of both worlds

Both can help Hong Kong sharpen its own skills and use its traditional experience in trade, commerce, marketing, shipping, aviation, global networks and banking to strengthen capabilities. With a deep pool of talent among the engineering, project management, financing, legal and arbitration professions, Hong Kong can offer services in collaboration with the mainland and other partners.

Hong Kong’s talented young people should see these opportunities positively. Schools and universities need to help students understand geopolitics and emerging markets. Young people will have to look beyond the traditional developed countries and build new links.

Working in places where systems and institutions are still evolving is hard. The last generation shed much blood, sweat and tears when the mainland opened up for business, and they were successful. Working with emerging economies and going abroad to cut one’s teeth is not for the faint-hearted, but that’s how fortunes are built.

Christine Loh is chief development strategist and adjunct professor at the Hong Kong University of Science and Technology’s Division of Environment and Sustainability. This is part of a series looking at what role Hong Kong can play in a revitalised China.

Other articles in the series:

Trade war is Hong Kong’s chance to prove its value to Beijing

Does Marxism have a role to play in Hong Kong?

How the Greater Bay Area plan can boost Hong Kong’s environmental collaboration

Hong Kong can best serve China as a mediator between East and West

How Hong Kong can help create the ‘Chinese dream’