In the run-up to 1997 when Britain handed over Hong Kong to China, the
fear was that the mainland would destroy the city state’s economy out
of either ignorance or envy. “Would the last person leaving Kai Tak
[the old airport] please turn the lights out,” was an oft-heard
rejoinder to anyone who believed that “one country, two systems” could
really work.
But things turned out differently. In the years following the handover,
China boomed while Hong Kong stalled under the impact of the Asian
crisis. Now in an about-turn of the pessimists’ worst fears, Chinese
policy is being crafted to shore up Hong Kong’s economy. Various
measures will ensure that Hong Kong remains a leading destination for
foreign direct investment (FDI), both for inward investors wishing to
target the Chinese market and for the growing band of Chinese companies
taking their first steps overseas.
The Closer Economic Partnership Arrangement that goes into effect from
January 1, 2004, will allow Hong Kong companies to export to China
tariff-free on 90% of goods. The terms of access are in some cases
better than, and realisable way ahead of, China’s WTO commitments. As
multinational companies can also realise these benefits, provided they
have been doing business in Hong Kong for three to five years, this is
a huge boost to investment in the territory.
But that’s not all. China is allowing its nationals to travel more
freely to Hong Kong and to take out more money – a boost for the
tourism industry as it recovers from the impact of SARS – and has made
overseas investment by Chinese companies much easier under its “going
out” policy. As most Chinese first-time overseas investors make Hong
Kong their first port of call, this is another boon to the Hong Kong
economy.
For banks the news is also good. In November, it was announced that
Hong Kong banks can do some renminbi business. From January they can
accept deposits, arrange remittances, make foreign exchange
transactions and issue credit and debit cards in renminbi.
China remains politically conservative, but with Hong Kong accounting
for a sizeable chunk of China’s GDP, the idea that the mainland would
deliberately ruin the place was always fanciful. Now the dust has
settled it’s clear that China is Hong Kong’s best friend. Investors
should be looking again at Hong Kong – both for itself and as the
continued natural jumping off place for China.
