Hong Kong Needs the Mainland More Than the Other Way Around

Posted by on Dec 12, 2014 in Blog | 0 comments

The Occupy Central protestors put on a brave face declaring “we’ll be back” as the Hong Kong police cleared them out of the Admiralty area which they illegally blocked for over 10 weeks.  I would underscore and amplify the summary below by Market Realist: those beleaguered students face some stark realities about Hong Kong’s relationship with the mainland.  As mentioned in a previous post, when Hong Kong reverted back to Chinese sovereignty in 1997, the port city represented about 18% of the mainland’s GDP; now it’s down to a mere 3% and within a decade, it will be just 1%.  The anxieties of the protestors behind the façade of electoral reform largely reflect this inexorable trend.

For the sake of ‘one country, two systems’, Beijing has maintained Hong Kong’s basic freedoms and rule of law and bestowed upon it an array of privileges that helps it prosper in the face of global downturns.  This is not even to mention the simple fact that most of the SAR’s electricity and water is supplied by the mainland along with the best produce and meats for their daily sustenance.   And, in a reversal of what the piece says is the mainland’s main dependency on Hong Kong, the mainland is increasingly becoming a major source of financial and human capital for the enclave.

Despite their rhetoric, the Occupiers won’t be able to reassemble because first, the police will be on the lookout for any such stirrings; and second, even if they’re able to muster some kind of mischief, given the rapid growth of the mainland and the heft it now carries, the central government will simply provide more preferential policies to other regions like the Shanghai Free Trade Zone, the rest of the Yangtze River Delta region, the greater Pearl River Delta area, the Beijing-Tianjin-Hebei greater area, among others.  Central planners are even mulling to make these areas full-fledged FTAs.  Then, there is central and western China that are yearning for more incentives.   All of which makes Hong Kong less and less imperative for China’s growth needs.

So, suck it up Occupiers and salvage what you have left.

 

China is crucial to Hong Kong

Hong Kong still relies a lot on China for its income and growth. In the past decade, China has been Hong Kong’s largest destination of re-exports and supplier of imports. In 2005, China replaced the US to become the largest destination of Hong Kong’s domestic exports.

  •  China accounts for about 47% of Hong Kong’s exports and 50% of its imports
  • 1/5th of bank assets in Hong Kong represent loans to Chinese customers
  •  Tourism and retail spending from China accounts for 10% of Hong Kong’s GDP

The interdependence between Hong Kong and China

While Hong Kong’s dependencies on China remain central to any China-Hong Kong debate, China too has been and is dependent on Hong Kong in more than one area.

Over the years, China has been able to receive foreign capital (financial and human) through Hong Kong’s more developed and mature legal system and capital market, which has served as an important platform for it. The platform has also aided China in absorbing technological and management expertise from the world.

With such cross-dependencies, it only makes sense for China and Hong Kong to resolve their political conflicts before the repercussions start impacting investment flow into the area.

– Market Realist