Now is the time for Hong Kong to capitalize on its unique position, says Nicholas KWAN who leads a team of researchers at the Hong Kong Trade Development Council in providing in-depth analysis and advice on the city’s economic and trade issues.
“Hong Kong remains resilient, and is on a path of growth, thanks to the fact that it has diversified into new markets in recent years,” says Nicholas Kwan, Director of Research at the Hong Kong Trade Development Council.
Even though Hong Kong sits on China’s doorstep, it has weathered the US-China trade war well, given the additional impact of the COVID-19 pandemic and the social unrest in 2019-2020 on the economy.
This does not mean that Hong Kong can rest on its laurels. Now is the time for the city to capitalize on its unique position and to find new opportunities to change, said Nicholas Kwan, Director of Research, at the Hong Kong Trade Development Council (HKTDC).
“If you look back at history, Hong Kong has always been highly resilient,” Kwan says. “Our trade with the US and China declined during the last two years, and the numbers are down. But if you compare our trade performance with everyone else, especially competitors in Asia such as Singapore, Korea, and even Japan, we did well. We were one of the top three in terms of trade growth in the world last year.” Kwan says.
A path of growth
Despite such a glowing report card, Kwan emphasizes that Hong Kong has not been immune to the effects of the Sino-US trade war. The mounting tension has taken a toll. But the good news is that Hong Kong remains resilient, and is on a path of growth, thanks to the fact that it has diversified into new markets in recent years.
“A large amount of the trade between the US and China moved through our ports, so of course we were affected. But we managed to offset that with other trade goods,” Kwan says.
“We explored new markets, particularly in Southeast Asia and increasingly in other emerging markets like the Middle East and Africa. At one time we were active in Latin America, and even Eastern Europe,” Kwan adds.
Moving forward, Kwan believes Hong Kong is more likely to be affected by domestic events in the short term. To prepare for the long term, the city needs to understand the changes that are happening globally.
Moving to a multipolar world
Kwan says that the global macro environment is unlike the “old days” when we lived in a peaceful unipolar world where everything followed a relatively predictable course, and everyone simply had to follow the predefined rules. That is no longer the case, he notes. “The world is no longer unipolar, it is multipolar,” he says.
As the world becomes more diversified, what used to work in the past will no longer work in the present or the future. Especially in terms of trade and technology, everyone needs to adapt to a more multipolar culture. We will continue to see an increase in the formation of multilateral institutions, Kwan says.
Kwan also adds that while some multilateral agreements are effective, others might be a little outdated and in need of modification. However, he believes that there will no longer be a single dominant system. American, European and Chinese systems will all play a part in the future.
“I think different sides have to understand that there is no single system that is best for everybody,” Kwan says. Countries will have to work together, and the good thing is that all the major players have an interest in each other’s development. If the US and China continue with the trade war, it will hurt both sides, he notes.
Hong Kong has a key role to play
Kwan believes that Hong Kong will continue to be in a great position despite the trade conflict, because it remains one of the few truly open and truly international cities. Hong Kong needs to capitalize on these qualities, Kwan says. He continues to see Hong Kong playing a key role in China’s internationalization.
“Some people think that China is closing its doors, but that’s wrong. In terms of trade, China is lowering tariffs and trade barriers. Some say it’s progressing too slowly, but if you compare its development to that of other countries, you find they did not achieve this very quickly either,” he says.
Multilateral development will not happen overnight, so Hong Kong will continue to play an even more important role. “We are in the best position to help China open up and become more international,” Kwan says.
To support these developments, Kwan believes that Hong Kong should play a more active role in two important initiatives: the Belt and Road and the Greater Bay Area (GBA).
For the Belt and Road to work, it needs to be a successful form of globalization effort which benefits China and the rest of the world. Internationalization is important as a simple bilateral program will not succeed. Hong Kong will play a significant role in ensuring that all sides benefit from a globalized approach. “We understand both sides better than anyone else,” Kwan says.
As for the Greater Bay Area, Kwan believes that it is very different from other regional development programs in China. This is mainly because the Greater Bay Area also includes Macau and Hong Kong. “The different systems in Hong Kong and Macau make this region a super connector not just for Hong Kong and China, but for China and the rest of the world,” Kwan says.
The Hong Kong model
Both initiatives need an international market to connect to China and the rest of the world. Mainland China may not be able to do that by itself, so Hong Kong can step in, he says.
“We are the pioneers, the testing ground, and hopefully Hong Kong will serve as a firewall in that process,” Kwan says. “This is the model that they are using when they connect with the rest of the world.”
Jobs will be plentiful in Hong Kong as a result. Despite any cyclical and sector employment problems that may arise because of the pandemic or social unrest, from the perspective of global development, Hong Kong remains in a good position because the transition to a multipolar world will take decades to complete. Many new opportunities will be created. The challenge will be whether the city will be able to fill the new jobs, and this is where education comes in. “We have a lot of work to do,” Kwan says.
Hong Kong’s Strategic Position
- Hong Kong remains one of the world’s most free economy. It is also one of the most service-oriented economies in the world, with the services sector accounting for 93.4 percent of its GDP in 2019.
- Hong Kong was the world’s sixth largest exporter of trading merchandise in 2020, according to the WTO, rising from the eighth in 2019.
- Because of its connections to China and the rest of the world, its strong research and development capabilities, and its world-class universities, Hong Kong ranked 11th globally in 2020 as an innovation and technology hub.
- Hong Kong has trade relations with many countries. It is a founding member of the WTO, a member of the Asia-Pacific Economic Cooperation, the Pacific Economic Cooperation Council, and the Asian Development Bank. It also has many free-trade agreements in force, including the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA).