HK braces it­self for fall­out from firms leav­ing China

City’s fi­nan­cial hub sta­tus will shrink as trade row sees for­eign firms move ops out of China

The Straits Times - - ASIA - Claire Huang Hong Kong Cor­re­spon­dent

As of­fi­cials say the es­ca­lat­ing trade war be­tween the United States and China will hit Hong Kong hard, ob­servers see the on­go­ing un­cer­tainty has­ten­ing the re­lo­ca­tion of for­eign firms from China.

And this shift will hit Hong Kong, the main­land’s main gate­way to the world and the largest off­shore yuan hub, which han­dles around 70 per cent of global yuan pay­ment trans­ac­tions.

Sec­re­tary for Com­merce and Eco­nomic Devel­op­ment Ed­ward Yau warned this week that the ex­por­to­ri­ented port city will be “hit harder and more im­mi­nently”.

“The com­mon worry is what hap­pens next is go­ing to hit us harder be­cause it cov­ers more con­sumer goods such as tex­tiles, gar­ments, food and elec­tron­ics,” he said.

The Trump ad­min­is­tra­tion has threat­ened to im­pose fur­ther tar­iffs on US$200 bil­lion (S$273 bil­lion) of im­ports from China, on top of last week’s tar­iffs on US$34 bil­lion of goods fo­cus­ing on man­u­fac­tur­ing parts.

An­a­lysts told The Straits Times that ris­ing costs on the main­land have seen for­eign firms, es­pe­cially in man­u­fac­tur­ing, move to Asean coun­tries, in par­tic­u­lar Viet­nam, where busi­ness costs are lower.

But the lat­est un­cer­tainty is set to be a trig­ger for for­eign com­pa­nies that have not yet scaled down op­er­a­tions or moved part of their busi­nesses out of China to re­con­sider their op­tions, said Mr Louis Kuijs, head of Asia re­search at Ox­ford Eco­nomics. “China is so im­por­tant for Hong Kong in terms of im­pact­ing its econ­omy that any­thing that’s bad for China is bad for Hong Kong. That is true in the short term and also true in the longer term.”

An­a­lysts said Hong Kong’s im­por­tance as a fi­nan­cial cen­tre is set to shrink as for­eign firms in China are likely to move part or all of their op­er­a­tions out of the coun­try on the back of grow­ing un­cer­tain­ties.

Mr Brock Sil­vers, man­ag­ing di­rec­tor of Shang­hai-based Kaiyuan Cap­i­tal, said: “If China were to lose im­por­tance as a global man­u­fac­tur­ing and ex­port hub, this would nat­u­rally re­duce the avail­able role for Hong Kong as well.”

When the US an­nounced the first round of tar­iffs, the Hong Kong gov­ern­ment noted about 17 per cent – or HK$60 bil­lion (S$10.5 bil­lion) – of Chi­nese ex­ports in ques­tion passed through the city to the US.

About 9 per cent or HK$6 bil­lion of US ex­ports came through the city on the way to main­land China.

These ex­ports ac­count for 1.4 per cent of Hong Kong’s over­all trade.

Mr Vin­cent Chan, head of Hong Kong and China re­search at Credit Suisse, be­lieves in the longer term, Asean coun­tries such as Viet­nam and Malaysia “will be the big­gest ben­e­fi­cia­ries” of firms re­lo­cat­ing.

Last Satur­day, Hong Kong’s Fi­nance Sec­re­tary Paul Chan said the short-term im­pact of the trade war would be lim­ited to a dip in growth of just 0.1 or 0.2 per­cent­age point, but the gov­ern­ment stood ready to help lo­cal busi­nesses if needed. China has also sig­nalled a shift in its ap­proach to for­eign in­vest­ment. This week, it agreed to a US$10 bil­lion petro­chem­i­cal project by Ger­many’s BASF that will be the first such plant in China to be wholly for­eign-owned, not a joint ven­ture, re­ports said, adding that China also gave the nod for a wholly-owned Shang­hai fac­tory for US elec­tric car maker Tesla.

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