While China is in the process of launching its breathtaking “Belt and Road” concept, the US and 11 other Pacific Rim countries involving about 40 percent of the world’s GDP reached agreement on the Trans-Pacific Partnership (TPP). Among other things, TPP aims to lower trade barriers and create a high-standard, broad-based regional pact. Next will come the Transatlantic Trade and Investment Partnership (TTIP), a broadly similar agreement between the US and the European Union. TPP and TTIP together are expected to replace the World Trade Organization.
TPP will have a varying impact on the trade and production of most countries, especially the US, its leader, and China, a non-member. The exclusion of China, the world’s largest merchandise trader with combined exports and imports worth $4.3 trillion last year, speaks volumes. In 2012, the Brookings Institution projected that TPP would generate only $5 billion for the US economy in 2015, and $14 billion in 2025. But its economic benefits would likely be larger if the impact of investment liberalization under TPP were also considered. This shows that TPP has other strategic considerations beyond its economic value.
However, TPP’s impact could reduce mainland trade by about $50 billion-$200 billion yearly. Hong Kong is the world’s eighth-largest trading economy and its export sector is skewed toward the mainland. Any mainland trade decline will inevitably hurt Hong Kong. In 2013, Hong Kong’s total merchandise trade was $977 billion; about 13 percent of the mainland’s exports ($277 billion) and imports ($247 billion), was handled via Hong Kong; and 62 percent of Hong Kong’s total re-exports originated from the mainland. As of June 2014, the import/export trade sector accounted for about 20 percent of Hong Kong’s GDP.
So how should Hong Kong confront the TPP challenges and even exploit the potential benefits that could arise from TPP, “Belt and Road” and other trade pacts?
First, the city must expand its bilateral and multilateral trade agreements with other regions. The Association of Southeast Asian Nations (ASEAN) is economically the fastest growing group globally, and is the fourth largest export market and second largest trading partner of Hong Kong. The HK-ASEAN Free Trade Agreement (FTA) will be signed in 2016, which will foster stronger HK-ASEAN economic ties and enhance Hong Kong’s role as a regional trading hub. Beijing is also negotiating a Regional Comprehensive Economic Partnership (RCEP) with ASEAN+6 nations, a Free Trade Area of the Asia-Pacific (FTAAP ) — a new and wider regional agreement strongly backed by Beijing; and of course the “Belt and Road” initiative. The RCEP potentially could achieve results that would offset the TPP, because it is more compatible with the different development stages of these Asian countries; and it is estimated the FTAAP will generate more income gains than TPP and RCEP by 2025. Beijing also has a customized bilateral FTA with TPP’s four founding countries to avoid TPP becoming monolithic, and is working with Singapore to upgrade bilateral FTA in 2016 and signing cross-border economic cooperation zones with Vietnam. All these “counter initiatives” will help Hong Kong minimize TPP’s impact, with the possibility of turning seeming adversity into opportunity, thanks to the close Hong Kong-mainland trade link.
Second, Hong Kong must work closely with the Beijing-led Asian Infrastructure Investment Bank (AIIB), an “Belt and Road” financial vehicle, on international financing. Already, Indonesia is seeking a $38 billion loan from the AIIB for a series of infrastructure projects, and plans to invest more than $400 billion over the next five years. Asia has an estimated $8 trillion in infrastructure needs by 2020, a golden opportunity Hong Kong’s comprehensive world-class financial services should exploit.
Third, the new Hong Kong Innovation and Technology Bureau will focus on supporting the development of technology infrastructure, encouraging research and development, and improving coordination between the government, industry, academia and research sectors to promote diversification of the economy. Senior Beijing official Ou Xiaoli from the National Development and Reform Commission said that Hong Kong can only play a “super-connector” role with the world if it teams up with mainland cities to develop new markets and industries to play an integral role in the globalization of the nation’s economy underlined by “Belt and Road”.
Fourth, the “Belt and Road” initiative goes far beyond trade, and Beijing has made the “Belt and Road” initiative part of its 13th Five-Year Plan (2016-20). Hong Kong should study diligently the “Belt and Road”’s vision in policy coordination, capacity building, liberalization and facilitation of trade and investment, and financial cooperation; as well as “Belt and Road”’s business implications in infrastructure construction, finance, renminbi internationalization, trade and logistics, distribution and retail, and tourism. Hong Kong companies should join study tours planned by the Hong Kong Trade Development Council (HKTDC) to the “Belt and Road” countries to identify new openings to boost the economy. They should also learn from the HKTDC website about any future opportunities offered by the initiative.
Last but not least, Hong Kong must fully utilize its competitive edge in the service sector. Ryan Lam, head of research at Shanghai Commercial Bank said: “(The initiative) will be able to boost Hong Kong’s trade sector if we can export more high-value-added professional services to those countries.”The author is an independent scholar and freelance writer. She is also the founder and president of the China-US Friendship Exchange, Inc.