Before answering this question, there are at least three aspects which need to be established. First, is the attractiveness of Hong Kong as a Centre of trade & commerce in South East Asia, really because of China or is it because of Hong Kong, trade routes to China become navigable?
Second, what percentage of GDP of SAR, is contributed by economic growth of China, which may be hampered due to the current downturn in PRC? Third, which are the sectors of economy dependent solely or largely on the economic health of PRC? Based on the responses to these questions, one can ascertain whether Hong Kong can maintain its attractiveness. Then the follow-up analysis would provide insights into how it can be achieved.
Background on Attractiveness of Hong Kong
As the longest remaining British colony till 1997 which no doubt has contributed to Hong Kong’s attractiveness as a post WW-2 maritime trade Centre of the western hemisphere with the eastern hemisphere. Leaving aside the inheritance of the historical past, in the last two decades till now, the economy of Hong Kong has been growing steadily with intermittent turbulence often caused by global events and international trade. It is the Service Industry of Hong Kong which has been the main contributor to GDP and attractiveness of the SAR. Service Industry contribution to the Hong Kong’s GDP has been growing steadily from 77.2% in 1985, 91.5% in 1995, and 93% in 2010; steadfastly staying between 90 to 93% from 2011 to 2015. (See more details at HK Coalition of Service Industries www.hkcsi.org.hk) The ranking of Hong Kong in World Trade for Commercial Services Exports was 9 in year 1995 and 10 in the year 2013. Not much has changed in terms of positioning of Hong Kong as the global trade Centre for services.
The GDP growth data published by Census and Statistics Department (“CSD”) reproduced in figure 1 for easy reference, as compared to the GDP of China (PRC) between 10.6% in 2009 to 6.75% in 2015, reflects that despite higher rate of GDP growth for China, Hong Kong maintained its position around 3.6% before declining to 0.8% in 1Q2016.
Figure 1: GDP Growth Rate Trend in Real Price Terms since 1997
The significant percentages (40 to 51%) of imports, domestic exports and re-exports have been with China (PRC), followed by APEC nations. Over the last five years the trade with APEC countries is increasing while there has been a general trend of declining trade with European Union, which is due to economic slowdown of EU countries. The re-export component of trade is undoubtedly dependent on China’s exports to the rest of the world passing through Hong Kong. Indirectly it is the decline in global trade which has an influence on China as well as Hong Kong for export of goods and services.
Key Services Segments of Hong Kong
The four key segments contributing about 57% to the SAR’s GDP are: Transportation & Logistics, Financial and Banking services; ICT and Tourism. The further breakdown is:
- Import/export, wholesale and retail trades
- Accommodation and food services
- Transportation, storage, postal and courier services
- Information and communications
- Financing and insurance
- Real estate, professional and business services
- Public administration, social and personal services
- Ownership of premises
The core services has remained same since 1985 till date but only the contribution to economy has increased from 77% to 93% of the GDP. The competency in the services sector has been complimentary to the economic growth of China.
The quick answer to the first question, “is the attractiveness of Hong Kong as a Centre of trade & commerce in South East Asia, really because of China,” will be “no”. The key findings of the brief analysis for the negative answer to the first question are:
- No doubt Hong Kong is a beneficiary of China’s external trade as much as China is dependent on Hong Kong’s unique position. In time to come if Shanghai, Guangzhou, Nanjing and Beijing are able to fulfill the role of Hong Kong.
- The increasing trade with APEC countries and domestic demand of China will still be dependent on Hong Kong.
Contribution by Economic Growth of China to the GDP of Hong Kong
The current levels of contribution prevailing during first quarter of 2016 are at the lowest in a decade. In view of the forecasts for next 5 years the growth rate of GDP for China likely to remain above 6%, which means the contribution to the economy of Hong Kong in the near terms will remain around 40% of the GDP of the SAR.
The high level of economic development and growth expected in ASEAN-5 nations (Indonesia, Malaysia, Philippines, Thailand and Vietnam) will provide impetus for HK to remain attractive.
Industry Sectors Solely Dependent on Economy of China
Though there are no such sectors of economy which may be termed as solely dependent on China but Transport and Logistics Sector is heavily reliant on global trade with China.
This sector can be well balanced by innovative strategies of SAR in expanding the logistic service network, efficiency and connectivity to offshore oil & gas sector economies.
How Hong Kong Can Maintain its Attractiveness?
In context of history, geographical location, legal and civic administration culture and international trade relations (independent of China), Hong Kong has a good potential to remain attractive, provided continuous strategic efforts are being undertaken by the industry and the government.
Some current favorable trends are:
- Upcoming FTZs in the Pearl River Delta, mooted to be the drivers of future growth for the southern region of China will also have positive impact on cross-border trade with Hong Kong, SAR for trade in professional services.
- The policy shift in Macau from gaming economy to tourism and trade will be another impetus for continuing attractiveness of Hong Kong as the most convenient and efficient gateway to Macau.
- Technology development initiatives launched by the SAR in 2016, which is evident from the proposals in the budget for Hong Kong to sustain its competitiveness in the global arena, under the “new economic order”, characterized by the shifting of global economic gravity, towards the East, and breakthroughs in information technology development.
- In the aspect of nurturing innovation, the Government will promote the application of smart production technologies, such as robotics; develop financial technologies; and support business start-ups and creative industries.
- Tourism industry will get much needed boost with the latest announcement of Genting Hong Kong to launch 10 Cruise vessels to promote luxury travel and holiday destinations in the east.
To summarize, it is not doubtful that Hong Kong will remain attractive business Centre of the East for foreseeable future despite the economic woes of global trade, China downturn or regional conflicts.
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