What Asean can learn from Hong Kong
Recently, I was fortunate to hear Bernard Chan talk about Hong Kong's experience "at the sharp end" of change in the world economy as China became a major global manufacturer.
Mr Chan, a member of the Executive Council of Hong Kong and a prominent Hong Kong businessman with strong Thai family connections, was a panelist in a discussion I moderated at Bangkok Bank’s seminar: “Changing China: Implications for the World Economy and Opportunities for Investment.”
He sees valuable lessons for Asean countries, including Thailand, in Hong Kong’s experience, as the region increasingly feels the influence of China. And his message is largely positive.
In 1980, as China’s economic and social reforms began, a quarter of Hong Kong’s economy was based on manufacturing. Given the much lower land and labor costs on the mainland, Hong Kong was right to be worried about China’s rise.
By 1997, when Britain handed Hong Kong back to China, Hong Kong had indeed lost many of its factories, and manufacturing had shrunk from 24 per cent of total GDP to 6.5 per cent. But for every manufacturing job lost, another was created in the now-burgeoning services sector, as Hong Kong’s economy adapted successfully. The services sector grew to dominate the economy, growing in sophistication and depth while manufacturing on the mainland took off.
Since then, Hong Kong has consolidated its position as a regional financial powerhouse. Anyone who has been there knows what a vibrant place it is. But now, Hong Kong is facing new challenges posed by China’s rise as a middle-income country – with increasing urbanisation, growing domestic consumption and its own services sector. For example, Hong Kong’s container port consistently outperformed its mainland counterpart at Shenzhen, but this is gradually changing as the Pearl River Delta becomes less dominated by low-cost manufacturing with growing opportunities for creativity and design, and high-value manufacturing.
As China’s leaders seek to rebalance the country’s economy, Mr Chan suggests the time may come when China will no longer need Hong Kong’s financing and its services.
To prepare, he says Hong Kong must refine its niche, building on its reputation for quality and trustworthiness. As examples, he cited Hong Kong’s legal system – including its transparent court system and independent judiciary – and its high corporate governance standards. Although he predicts Shanghai will eventually surpass Hong Kong as the region’s premier stock exchange, a listing in Hong Kong will continue to represent a mark of quality for any Chinese company in the foreseeable future and will provide investors with extra assurance.
Chinese foreign direct investment (FDI) will continue to flow to a wider range of sectors and geographies, so while Hong Kong has traditionally been a channel for funds flowing into China, it can now broaden its scope.
Hong Kong of course is different in many ways from Thailand, but there are still major lessons we can learn from the city-state’s transformative experience with its giant neighbour. Most importantly, we need to identify the adjustments we need to make, and be flexible and willing to make them. Then, like Hong Kong, Thailand can enjoy the net benefits of China’s amazing growth story.
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