Author: Edward K Y Chen, University of Hong Kong
Hong Kong’s economy has borne the fruits of positive conditions in 2017. It is expected that GDP will grow at 3.7 per cent, which is up from 1.9 per cent in 2016 and well above the past ten-year trend of 2.9 per cent. This unexpected performance is largely owed to a faster than expected growth in world trade of 3.6 per cent and mainland China’s higher than expected economic growth of 6.8 per cent.
Demand from Asian markets has also continued to rise. Total exports of goods (of which 98.8 per cent are re-exports) will grow over 6 per cent this year compared to only 1.8 per cent in 2016. Container throughput also increased by 7.7 per cent in the first ten months of 2017, reversing the declining trend of the past five years.
Restrictions on foreign travel and the anti-corruption campaign in mainland China accounted for much of the slow growth in retail sales. But private domestic consumption has picked up significantly due to the wealth effects of stock and property market booms.
More generally, there are positive economic factors that have supported faster growth in Hong Kong this year and which have fostered optimism for the longer term.
First, the Guangdong–Hong Kong–Macao Greater Bay Area (GBA) proposal was elevated to the Central Government level when Premier Li Keqiang presented his government work report in March. This GBA covers nine major cities on the east and west coasts of the Pearl River Delta plus the two special administrative regions, Hong Kong and Macao. While Hong Kong, Shenzhen and Guangzhou are obviously major trade hubs, this GBA will provide a supporting hub or locus for the Belt and Road Initiative by means of a doorway for the Maritime Silk Road to exit from China to South and Southeast Asia.
This GBA proposal is not a slogan but a part of the Central Government policy for long-term international development. It will be coordinated by the powerful National Development and Reform Commission in Beijing and the cities involved have been asked to submit concrete proposals to Beijing for consolidation by years’ end.
A GBA Office will be set up under the Mainland and Constitutional Affairs Bureau in Hong Kong. Hong Kong will be the financial and business centre, will enjoy the benefit of further cooperation with Shenzhen in innovation and technology and will have access to land and other resources in other Pearl River Delta cities.
But it will not be without challenges. Unlike other GBAs in the world such as San Francisco, New York or Tokyo, the Guangdong–Hong Kong–Macao GBA has three borders (China, Hong Kong and Macao), two systems (capitalism and socialism) and three hubs (Hong Kong, Shenzhen and Guangzhou). There are a lot of differences to be ironed out.
Second, there seems to be some light at the end of the tunnel in Hong Kong’s development of innovation and technology. In her maiden policy address, new Chief Executive Carrie Lam outlined some concrete proposals. Besides tax and other incentives, a target was set for increasing the current meagre research and development to GDP ratio of 0.73 to 1.5 in five years’ time.
Further, the Lok Ma Chau Loop development along the Shenzhen–Hong Kong border — which has been under negotiation for twenty years — was finally set to start under an agreement reached in January 2017. The Loop seeks to provide land and facilities for technological innovation activities.
But there are still challenges in building an inductive eco-system for innovation and technology, including manpower and land supply, education curriculum, adequate funding channels and facilities as well as research and training opportunities in the public and private sectors.
Third, a key economic development in 2017 is the conclusion, after three years of negotiation, of the Hong Kong–ASEAN Free Trade Agreement (FTA) in November. This comprehensive FTA — encompassing trade of goods and services, investment, economic and technological cooperation and conflict resolution — is of great significance to Hong Kong in view of ASEAN’s economic size, its close trading relationship with Hong Kong and above all the role of Hong Kong in linking China with ASEAN in the Belt and Road Initiative.
ASEAN is Hong Kong’s second-largest trading partner after China. It is estimated that about 50 per cent of China’s overseas direct investment in ASEAN is via Hong Kong, which provides professional services and a financing platform. It is expected that Chinese enterprises will increasingly establish their regional headquarters in Hong Kong for overseas investment in general and particularly for ASEAN. Hong Kong will set up its third ASEAN Economic and Trade Office in Thailand, following on from Singapore and Indonesia.
Analysts can be cautiously optimistic about the economic performance of Hong Kong in 2018. But it is important to be mindful of the global monetary environment next year, in particular the tapering of the United States Federal Reserve balance sheet and the likely resulting rise in interest rates, as well as shifting geopolitics in Asia and elsewhere. Hong Kong felt the impact of global and regional financial crises in 1987–88, 1997–98 and 2007–08, and some fear another financial crisis in 2018.
On the other hand, perhaps Hong Kong does not have to be so worried about rising trade protectionism and anti-globalism. The trade tension between China and the United States is milder than first envisaged and Asia’s economic growth looks set to continue.
Edward K Y Chen is Chairman of the Board of Directors of Hong Kong University’s School of Professional and Continuing Education.
This article is part of an EAF special feature series on 2017 in review and the year ahead.