How US-China decoupling makes Hong Kong a prime go-between to ease economic rifts with West

Special administration region seen uniquely positioned to serve as dialogue nexus that could help prevent economic fragmentation from devolving into bigger conflict

City’s financial secretary warns that further fragmentation with West could hinder cross-border capital flows and jeopardise international financing options

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Hong Kong Financial Secretary Paul Chan speaks on Friday at an event organised by the International Finance Forum. Photo: Handout

Published: 9:00pm, 8 May 2023

Hong Kong can play an important role in helping abate the trend toward China-US decoupling that poses growing risks to the global economy, officials and analysts said at a recent conference in the city for business executives.

“Shifting trade and supply chains that tie to geopolitical blocs are gaining increasing attention,” Hong Kong Financial Secretary Paul Chan said at the event on Friday. “Financial flows, foreign direct investment and supply chains may become more fragmented as a result.”

By offering itself as a dialogue nexus, Hong Kong could stop China’s economic fragmentation with the West from leading to a bigger conflict, according to conference panellist Antony Leung, an independent non-executive director of China Construction Bank.

Leung, who is also chairman of the Hong Kong-based Nan Fung property development group, foresees a world fractured by a Western alliance and another bloc led by China.

“Hong Kong sits right in the middle – we have … an emerging economy, and we [trade] with the rest of the world, so clearly we feel the winds, but hopefully Hong Kong can play the role of bridging the two systems. Maybe have a dialogue through Hong Kong,” Leung suggested, adding that offshore traders and investors still care about the China market.

“Hopefully Hong Kong can [help explain] to the world what [China’s] emergence is like. And secondly, that we are no threat to the rest of the world.”

Chan added that wider fragmentation with the West could hinder cross-border capital flows and jeopardise international financing options and “risk sharing”. Individual countries may also lose “diversity in funding sources”, he said, leading to higher financing costs and more “fragmented liquidity”.

The financial secretary said Hong Kong would help support multilateralism by serving as Asia’s premier “green financing hub”. Last year, it issued more than US$80 billion worth of green and sustainable debt – the most in Asia.