Regional cooperation key to overcoming trade spat

Dependent on Sino-US commerce, HK must strengthen its commercial links with nearby regions as well as emerging markets to protect its interests, Jonathan Choi writes

The rising Sino-US trade tension has caused much concern and discussion recently. As an important entrepot for trade between the world’s two largest economies, Hong Kong will inevitably be affected to a certain extent. Many Hong Kong companies have business and investment connections between the Chinese mainland and United States. Most of them also participate in the US export supply chain. We must pay attention to the trade dispute issue’s development and prepare for possible impact on Hong Kong’s economy and business operations. In the long term, we should explore opportunities in markets related to the Belt and Road Initiative, the Guangdong-Hong KongMacao Greater Bay Area and Association of Southeast Asian Nations in order to create room for more diversified business development.

The Chinese mainland and US are Hong Kong’s two biggest trade partners. According to the Census and Statistics Department, Hong Kong’s merchandise trade with the mainland last year was worth HK$4.1 trillion, accounting for half the city’s total external trade. Of the Chinese mainland’s exports to the US, $350 billion worth goes through Hong Kong, accounting for 65 percent of the city’s overall trade with the US. This reflects the importance of Sino-US trade on our external trade development.

If trade conflict continues and worsens, it will undoubtedly weaken Hong Kong’s entrepot and off-shore trade role. Hong Kong businesses involved in re-export trade between the mainland and US, especially those with factories carrying out assembly for export trade in the Pearl River Delta, will feel the initial blows. An entire range of trade support services will also be affected.

Escalation of the trade dispute would also result in less direct investment by US investors in certain mainland and Hong Kong-based industries. Along with rises in interest rates, this may reverse capital flows and spur asset price adjustments. This would hamper the stability of Hong Kong’s financial markets and banking system, increase loan and operating costs for companies and even affect the real economy.

Trade wars are essentially counterproductive to economic globalization, hurting the interests of both businesses and consumers and negatively affecting global economic growth, the business environment and even labor markets. There may be opposition in the US business community to recent measures taken by the administration of President Donald Trump but US companies that have invested heavily in the China market are especially worried about their business there and concerned about the impact on the overall industry supply chain, resulting in inestimable damage to trade exchanges and mutual investment.

Chinese leaders emphasized the importance of free trade and openness multiple times during the recent two sessions in Beijing. President Xi Jinping reiterated that China’s open door would not close and the country must work to stay open to the world. Premier Li Keqiang also said that following four decades of reform and opening-up the mainland will maintain a national policy of open trade and open the country’s doors even wider. He also hopes the US will ease export restrictions on high-tech and high-value-added products, working to develop a more balanced trade regime between China and the US that will ensure more stable growth in the global economy.

As a highly open economy, Hong Kong is affected a great deal by any form of trade protectionism. The city’s business community must evaluate the impact of trade tensions on short- and mid-term business activities and take steps to prevent and deal with those changes, making necessary adjustments to operational strategies and investment plans in order to minimize the risk and losses that may arise.

The mainland’s full implementation of the Belt and Road Initiative, the announcement of specific plans for the Bay Area and Hong Kong’s official signing of a free trade agreement with ASEAN last year are examples of new models for regional economic cooperation that will provide businesses with more diversified and emerging markets, and in the long term create more opportunities for economic development in Hong Kong. We hope the special administrative region government will provide more comprehensive support for Hong Kong businesses to participate in regional economic partnerships and expand in emerging markets.

The Chinese General Chamber of Commerce will also continue to utilize its network and act as a bridge to support our member companies and sectors to explore more opportunities for business development in markets within the Bay Area, in ASEAN as well as those linked to the Belt and Road.