Written by Hak Yin Li.

Since China first officially announced the “One Belt One Road” (OBOR) plan in 2013, discussions concerning the role of Hong Kong in the plan have increased dramatically. Leung Chung Ying, the Chief Executive (CE) of Hong Kong, stated at the Boao Forum Annual Conference in Hainan in March that Hong Kong can be a “super-connector” between China and the rest of the world in the OBOR plan because Hong Kong has the second largest equity fund market and the seventh largest stock market in the world. This could help solve fund raising issues when the OBOR plan begins. Can Hong Kong really play a leading or dominant role in the OBOR plan?

Priscilla Lau Pui-King, a Hong Kong deputy in the National People’s Congress and a scholar in the fields of accounting and finance, commented in China Daily that Hong Kong is “the unique financial platform” of the OBOR plan for financing and asset management. Because Hong Kong has more than 200 international banks and a comprehensive legal system, international investors can be assured that syndicated loans and the issuing of bonds will be monitored by relevant regulations.[1]

Ba Shu Song, a researcher at the Development Research Centre of China’s State Council and Chief Economist of the China Banking Association pointed out in Ming Pao Daily that China’s capitals and financial accounts have not yet completely opened to the international market, so the Central Government can make Hong Kong its offshore RMB exchange centre under the OBOR plan. By issuing bonds or making initial public offerings in the RMB stock market through Hong Kong, the OBOR plan can acquire its necessary funding and the RMB can be further internationalized.[2]

The economic transition experience of Hong Kong also makes it a role model for the Chinese corporations in the OBOR plan. In an interview with Hong Kong’s newspaper, Justin Lin Yifu, professor and director of the National School of Development at Peking University and a counsellor with China’s State Council said that Hong Kong transited its manufacturing industries first to mainland China in the 1980s, and then recently to Southeast Asian countries such as Cambodia, the Philippines and Vietnam. These experiences are valuable to many Chinese corporations, especially because the OBOR plan is to create massive manufacturing industries overseas.[3]

The above pivotal roles of Hong Kong are indeed recognized by Chinese officials. In April, Song Zhe, a commissioner of the Ministry of Foreign Affairs (MFA) of the People’s Republic of China in Hong Kong contributed a piece in The South China Morning Post (SCMP), which is an influential business newspaper in Hong Kong. Song expects Hong Kong to “play the role of a bridge as its legal system, market rules and managerial expertise are up to international standards.” Wang Guangya, Chairman of the Hong Kong and Macau Affairs Office of the State Council, expressed a similar view and urged Hong Kong not to miss this valuable opportunity.[4]

Challenges and Uncertainties

Indeed, no one could doubt that Hong Kong is an international financial centre, nor ignore its potential in facilitating the OBOR plan. However, there is lack of reaffirmation from the Central Government about the role of Hong Kong in the future.

The Chinese official paper, “Vision and Actions on Jointly Building the ‘Silk Road Economic Belt’ and ‘21st-Century Maritime Silk Road’”, states that the OBOR plan should make use of various natural advantages in different regions in order to hasten cooperation between East and West and to increase the level of open economy comprehensively.[5] To state a few examples: Xinjiang province would be a window to Central, West and South Asia; Inner Mongolia and Heilongjiang province can form a high speed transport corridor between Beijing and Moscow; the Southwest Region would be the gateway to the Association of Southeast Asian Nations (ASEAN) and the Mekong River economic area. The coastal areas should be utilized, such as the Yangtze River Delta, the Pearl River Delta, the Bohai Economic Rim and the cross-strait area, while cooperation between Hong Kong, Macau and Taiwan should be intensified in order to form the Guangdong-Hong Kong-Macau Big Bay Area. Obviously, Hong Kong is now only one of China’s windows. However, there is very limited coverage on Hong Kong (and Taiwan, surprisingly) in the official paper.

The official paper may further disappoint Hong Kong concerning some new economic initiatives. The Central Government will move faster on the implementation of the Shanghai Free-Trade Zone (FTZ) and make Fujian province the core area of the 21st-Century Maritime Silk Road. Indeed, even before the release of the official paper, Chinese Premier Li Keqiang announced in December last year that Tianjin, Fujian and Guangdong will also become FTZs. There is also a list of 15 coastal ports that the Central Government plans to strengthen, some of them close to Hong Kong, such as Guangzhou, Shenzhen, Zhanjiang and Shantou. Shanghai and Guangzhou will also be transformed and expanded into international hub airports. The FTZs are something like Hong Kong in that both local and foreign corporations can compete fairly with a sound regulatory regime and have various financial services that can offer intellectual property rights, the convertibility of currency and the protection of investment. Hong Kong’s current financial superiority may be undermined if these FTZs function well in future.

In addition, Hong Kong’s logistic and transport hub has been weakened by the rise of the Pearl River Delta in the 2000s. Ta Kung Pao, a pro-Beijing Chinese newspaper in Hong Kong, reported as early as 2013 that more maritime cargo has been shifted to Shenzhen port at a cheaper cost.[6] Furthermore the construction of the Hong Kong International Airport’s third runway is still under intense debate, while the third runway of Guangzhou’s Baiyun International Airport has just been opened for use.

There is also fierce competition from Guangdong province. He Ningka, director of the Guangdong Development and Reform Commission, told China Daily in June that Guangzhou and Shenzhen will be the leading ports under the OBOR plan, while Zhuhai, Zhanjiang, Shantou and Chaozhou will play supporting roles. Hong Kong is also part of it, but he did not elaborate further about the role of or coordination between those ports. He also said that “cooperation with Hong Kong and Macau will be emphasized. We will also expand economic and trade-cooperation. These are Guangdong’s characteristics.”[7] From the position of Guangdong province, it can be seen that Hong Kong is no longer an independent city or port in the OBOR plan.

Political instability may also be a hurdle that has undermined Hong Kong’s reliability and credibility in the Central Government’s planning. In February last year, while Hong Kong society was discussing and debating the “Occupy Central” proposal and its possible launch in the summer, the Central Government suddenly announced the replacement of the Asia-Pacific Economic Cooperation (APEC) finance ministers’ meeting place from Hong Kong to Beijing. China claimed that the change of venue would better fit the bilateral meeting between Chinese President Xi Jinping and American President Barack Obama. However, one APEC official told the SCMP that a sudden change of meeting place is rare.[8] In contrast, Macau, a sister city of Hong Kong, was allowed to hold the APEC tourism ministers’ meeting without any modification.

The interpretations of the Central Government’s decision were highly political in Hong Kong.  The decision was understood to be a serious warning, if not a punishment, from the Chinese leaders to the Hong Kong people regarding the “Occupy Central” proposal. Finally, the “Umbrella Movement”[9] broke out and it lasted for 79 days with very broad coverage in the international mass media. Perhaps the question now to be posed to the Central Government does not concern Hong Kong’s ability to act as the facilitator of the OBOR plan, but whether Hong Kong should be given such a prestigious task while Shanghai, Tianjin and Guangzhou can offer much more loyalty to the Central Government.

A Further Politicized Hong Kong

Since the “Umbrella Movement,” Hong Kong has become more politicized with the rise of localism and various antagonistic forces in the society, which further challenges Hong Kong as a stable international financial centre in the region. No doubt this will have a negative impact on the future economic development of Hong Kong and, hence, the role of Hong Kong in the OBOR plan will also be affected. Recently, Hong Kong’s Legislative Council (Legco) voted down a political reform proposed by Leung’s administration. Many expect that there will be continuous conflicts between different political forces because of the lack of consensus on the future political path of Hong Kong.

The business sector is always highly sensitive to changes in the political environment. According to BBC News in July, HSBC is hesitating about moving its headquarters back to Hong Kong because of the increasing political instability.  New York and Singapore are now on the list for consideration.[10] HSBC’s concerns are probably being shared by other businesses and MNCs in Hong Kong as well. The relocation of the headquarters and regional offices of MNCs could deeply hurt Hong Kong’s economy as finance and the service industry have been economic buttresses since its manufacturing industries shifted to mainland China in the 1980s. If this happens, Hong Kong may be overwhelmed by other major Chinese cities.

It seems that the Central Government is still considering how to make use of its leverage over Hong Kong. The CE visited Beijing in July to report the current situation in Hong Kong and discuss the role of Hong Kong in OBOR. Leung met Zhang Yesui, the Vice Minister of MFA, but Zhang only mentioned that the Central Government will think about how Hong Kong can help in the OBOR plan.[11]

Almost a week later, the legislators of the largest pro-Beijing political party in Hong Kong, the Democratic Alliance for the Betterment and Progress of Hong Kong (DAB), arrived in Beijing as well. The head of the DAB, Starry Lee, claimed that the purpose of the business trip was to lobby the Central Government in order to have Hong Kong play a more prominent role in the OBOR plan – for example, to lobby for the establishment of a regional office of the AIIB in Hong Kong. It is a surprising that, after meeting with Zhang Dejiang, the head of the National People’s Congress (NPC), and also the top Chinese leader in charge of Hong Kong and Macau Affairs, Zhang only urged the DAB to support Leung’s administration continuously. Neither Zhang nor the DAB mentioned anything new about Hong Kong and OBOR after the meeting.[12]

Most of the comments and opinions noted in Hong Kong express the belief that there will be a place for Hong Kong in the OBOR plan because of its rule of law and world class financial services. However, the OBOR plan is indeed a mega open system and Hong Kong is only one of the gateways, not the only one. Besides, from the Chinese leaders’ perspective, perhaps the situation now in Hong Kong makes it more likely to be a political problem than an economic asset.

Hak Yin Li is a Lecturer at the Department of Government and Public Administration at the Chinese University of Hong Kong. Image credit: CC by jo.sau/Flickr

[1] See “Big role for HK in ‘One Belt, One Road’ plan”, China Daily, 14 March 2015.

[2] See Ming Pao Daily, 15 May 2015.

[3] See Ming Pao Daily, 5 July 2015.

[4] See Wen Wei Po, 30 July 2015.

[5] See the website of National Development and Reform Commission, <http://www.sdpc.gov.cn/xwzx/ xwfb/201503/t20150328_669089.html>, accessed on 2 April 2015.

[6] See Ta Kung Pao, 8 February 2013.

[7] See “Guangdong sees big role in ‘One Belt, One Road’”, China Daily, 5 June 2015.

[8] See “Key Apec meeting switched from Hong Kong to Beijing”, South China Morning Post, 25 February 2014.

[9] The “Umbrella Movement” took place in Hong Kong in September last year. At the very beginning, some social activists and scholars planned “Occupy Central” – a practice of civil disobedience through the occupation of the central business district in Hong Kong – in order to pressure the Central Government into allowing a genuine universal suffrage of the CE. The occupation later turned into a larger social movement when Hong Kong’s people used umbrellas to resist tear gas later on and more and more people went on to the street and joined the strikes. (This is also why the movement is named the “Umbrella Movement”).

[10] See “HSBC’s Gulliver steps back from London HQ decision”, BBC, 22 July 2015, <http://www.bbc.com/ news/business-33622422>, accessed on 22 July 2015.

[11] See Ming Pao Daily, 14 July 2015.

[12] See Ming Pao Daily, 24 July 2015.