Ball in Donald Trump’s court as Xi Jinping champions free trade at Boao Forum
There is no reason to doubt China’s pledge to further open its market
For two weeks, the world anxiously awaited what President Xi Jinping would say at the Boao Forum for Asia Annual Conference 2018 in Hainan, given tit-for-tat trade threats between the world’s two largest economies – the United States and China. After he delivered his keynote speech at the opening ceremony, the global market felt the relief and most leading stock markets around the world rallied positively.
Why? Xi did not use the forum to launch another round of retaliatory tariffs on American exports to China. Instead, he said that while not seeking trade surplus with any country, China was ready to increase imports that were needed by the Chinese public.
He also promised to remove trade barriers and open the Chinese market further by lowering tariffs on a range of foreign goods such as vehicles, easing restrictions on foreign ownership in Chinese carmakers as well as companies in the banking, insurance and brokerage sectors, opening further the capital and insurance sectors and protecting the intellectual property of foreign companies doing business in China.
There is no reason to doubt the country’s pledge to further open its market. After all, 40 years of relentless market reforms and opening up has generated tremendous wealth for the country. To Hong Kong businessmen who have already benefited from Beijing’s reforms, a more open market holds even more promises.
Many observers believe Xi’s attempts to position China as the world champion of free trade and open markets. If he can convince the world, the US’ dominance in the global market should be weakened and, as a result, the yuan will grow in acceptance on the world stage and could become a strong currency.
A strong yuan has profound implications for Hong Kong. Although it might increase inflationary pressure, it offers a chance for the city to establish its position as a predominant offshore yuan market.
However, a more liberalised mainland market flooded with foreign products may not bode well for Hong Kong-made products on the mainland market because of intensified competition. In addition, increased convenience for mainland consumers to buy foreign-made products in the domestic market means fewer mainland tourists need come to this city to snap up foreign merchandise. Hong Kong’s retail and tourism sectors should start thinking ahead of ways to attract and retain mainland visitors to the city.
At Boao, Xi declared that “we live at a time with an overwhelming trend towards peace and cooperation as well as openness and connectivity”. He also said China would promote global collaboration to build a “world of shared benefits”.
He further said “we can make the ‘Belt and Road Initiative’ the broadest platform for international cooperation in keeping with the trend of economic globalisation and to the greater benefit of all our peoples”. If more countries embrace the trade scheme, Hong Kong should double efforts to leverage its status as an international business and financial centre offering world-standard professional services to carve out a special role in the initiative.
Of course, there are potential challenges for Hong Kong. Xi’s promise to ease restrictions for foreign financial institutions to operate on the mainland and allow them to own shares in the country’s securities firms would hasten financial market reforms. As a result, mainland financial institutions would gradually learn best practices, becoming more competitive. Hong Kong’s investment boutiques must beware this scenario.
One thing for sure about Xi’s speech is that China under his leadership does not want to engage in a fierce trade war with the US. Hong Kong should feel the burden lifted if trade war between China and the US can be averted.
The ball is in Trump’s court.
Ken Chu is the group chairman and chief executive of Mission Hills Group and a national committee member of the Chinese People’s Political Consultative Conference