Economy

Why Hong Kong Is So Crucial For China’s Global Ambitions

Growing in Hong Kong
Growing in Hong Kong
Sun Bushou

-Analysis-

HONG KONG â€" "Super Coordinator" has quickly become the term-of-choice for the Hong Kong government to define its relationship with mainland China.

Pronounced for the first time last June by Leung Chun-ying, the Chief Executive of the former British colony, the expression is used to emphasize Hong Kong’s crucial role in linking the mainland with the rest of the world. As such, Hong Kong needs to be fully integrated into the "One Belt, One Road" framework for China to expand its influence, primarily in Eurasia, through the economic development of areas along the ancient Silk Road.

But what exactly is a "super coordinator"? In short, it’s the role Hong Kong plays as a broker, a transit hub, and a special trade zone in connecting China with the world. For centuries, ever since the Ming Dynasty, a conservative closed-door policy has prevailed in the Middle Kingdom. Since it was impossible to completely eliminate private trade, Guangzhou, a river port in the southeast province of Canton, sprouted from the middle of nowhere, and served as the only trading zone open to the West. That role was gradually taken over by Shanghai after it was opened in 1843 and rapidly became the Far East’s biggest city.

After the founding of Communist China, and during the period of the planned economy, Shanghai was re-designated from being a commercial city to an industrial one. Hong Kong then swiftly took over the role as commercial hub, and served as the only channel for trade between mainland China and the world.

Hong Kong cityscape â€" Photo: Isaac Torrontera

This exclusive "One Port" trade policy help propel the Hong Kong miracle, and made it, between the end of World War II and the 1980s, the Far-East’s largest shipping, trade and financial center. Its spot under the limelight was even brighter than that of Shanghai at the turn of the 20th century.

With the rise of Tokyo and Singapore in the 1980s and 90s, Hong Kong no longer was alone as an Asian trading and shipping hub, yet remained an essential port for the region. But what threatened it more was the recent rise of mainland China. The fact is that, after 30 years of economic reform and opening up in the mainland, Hong Kong no longer has a monopoly position as China’s trade hub, and its "useful value" has thus largely diminished.

This, at least, is the historical background for Hong Kong's critics. However, let’s take a look at some of the facts around the logistics, capital, and passengers flowing through the port city to see if it is really in decline.

By the numbers

As far as logistic flows, Hong Kong's foreign trade in 2014 amounted to some $900 billion, an increase of 3.6% over the previous year. This growth rate is higher than that of mainland China. Besides, Hong Kong’s total trade volume with the mainland amounted to $376 billion. Though, compared with 2013, this has dropped 6.2 %, it nonetheless is strong growth of 62% in comparison with 2010, and still accounts for 8.7% of its total trade volume with mainland China. As it happens, if it were taken as an independent state, Hong Kong comfortably retains its position as China’s fourth trade partner just after the EU, the United States, and the ASEAN countries.

In capital flows, Hong Kong stands out even more as a "super contact". In 2014, Hong Kong accounted for 68% of China’s foreign direct investment (FDI) with a year-on-year growth of 10.7%. It also accounted for 58% of China’s outward FDI, an annual growth of 13%.

Meanwhile, in 2014, the FDI in Hong Kong amounted to $103 billion with a year-on-year increase of 39%, while its outward direct investment (ODI) amounted to $143 billion, a 77% growth, ranking the city as the world’s No. 2 on both counts.

Naturally the greater part of Hong Kong’s capital is not local but is funding in transit. However, in the context of a 16% decrease in global FDI, Hong Kong’s new high both in FDI and ODI shows that there’s now even more inward and outward capital flows through it.

In the streets of Hong Kong â€" Photo: green_intruder

As for the passenger flow, even considering the constant quarrels between island residents and Chinese mainlanders, Hong Kong sees a stable increase in the number of tourists. In 2014, 60 million tourists visited Hong Kong, among which 47 million came from China. It’s a growth of 16% in comparison with 2013.

This is not to mention that in 2014, Hong Kong stock market completed a total of 115 initial public offerings (IPO), ranking it as the world’s second, just after the New York Stock Exchange. As of the December 15th 2015, though the final statistic is not yet published, Hong Kong has surpassed New York in IPO performance.

Overall, although Hong Kong faces competition from mainland cities such as Shanghai and Shenzhen, the cake of the Chinese economy continues to grow â€" so what Hong Kong loses in market share is relative.

Not only has Hong Kong’s position as an international commercial and financial center been cemented, it may advance even further under the "new normal" of slower growth of the Chinese economy, which would rely on Hong Kong to make such adjustments.

From its role as the mainland's trade center and international capital and industry hub in the 1980 and 1990s before rejoining China to becoming Chinese firms’ first choice in raising overseas capital today, Hong Kong has shown that it is of enduring importance for China's destiny.

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Future

7 Ways The Pandemic May Change The Airline Industry For Good

Will flying be greener? More comfortable? Less frequent? As the world eyes a post-COVID reality, we look at ways the airline industry has been changing through a pandemic that has devastated air travel.

Ready for (a different kind of) takeoff?

Carl-Johan Karlsson

It's hard to overstate the damage the pandemic has had on the airline industry, with global revenues dropping by 40% in 2020 and dozens of airlines around the world filing for bankruptcy. One moment last year when the gravity became particularly apparent was when Asian carriers (in countries with low COVID-19 rates) began offering "flights to nowhere" — starting and ending at the same airport as a way to earn some cash from would-be travelers who missed the in-flight experience.

More than a year later today, experts believe that air traffic won't return to normal levels until 2024.


But beyond the financial woes, the unprecedented slowdown in air travel may bring some silver linings as key aspects of the industry are bound to change once back in full spin, with some longer-term effects on aviation already emerging. Here are some major transformations to expect in the coming years:

Cleaner aviation fuel

The U.S. administration of President Joe Biden and the airline industry recently agreed to the ambitious goal of replacing all jet fuel with sustainable alternatives by 2050. Already in a decade, the U.S. aims to produce three billion gallons of sustainable fuel — about one-tenth of current total use — from waste, plants and other organic matter.

While greening the world's road transport has long been at the top of the climate agenda, aviation is not even included under the Paris Agreement. But with air travel responsible for roughly 12% of all CO2 emissions from transport, and stricter international regulation on the horizon, the industry is increasingly seeking sustainable alternatives to petroleum-based fuel.

Fees imposed on the airline industry should be funneled into a climate fund.

In Germany, state broadcaster Deutsche Welle reports that the world's first factory producing CO2-neutral kerosene recently started operations in the town of Wertle, in Lower Saxony. The plant, for which Lufthansa is set to become the pilot customer, will produce CO2-neutral kerosene through a circular production cycle incorporating sustainable and green energy sources and raw materials. Energy is supplied through wind turbines from the surrounding area, while the fuel's main ingredients are water and waste-generated CO2 coming from a nearby biogas plant.

Farther north, Norwegian Air Shuttle has recently submitted a recommendation to the government that fees imposed on the airline industry should be funneled into a climate fund aimed at developing cleaner aviation fuel, according to Norwegian news site E24. The airline also suggested that the government significantly reduce the tax burden on the industry over a longer period to allow airlines to recover from the pandemic.

Black-and-white photo of an ariplane shot from below flying across the sky and leaving condensation trails

High-flying ambitions for the sector

Joel & Jasmin Førestbird

Hydrogen and electrification

Some airline manufacturers are betting on hydrogen, with research suggesting that the abundant resource has the potential to match the flight distances and payload of a current fossil-fuel aircraft. If derived from renewable resources like sun and wind power, hydrogen — with an energy-density almost three times that of gasoline or diesel — could work as a fully sustainable aviation fuel that emits only water.

One example comes out of California, where fuel-cell specialist HyPoint has entered a partnership with Pennsylvania-based Piasecki Aircraft Corporation to manufacture 650-kilowatt hydrogen fuel cell systems for aircrafts. According to HyPoint, the system — scheduled for commercial availability product by 2025 — will have four times the energy density of existing lithium-ion batteries and double the specific power of existing hydrogen fuel-cell systems.

Meanwhile, Rolls-Royce is looking to smash the speed record of electrical flights with a newly designed 23-foot-long model. Christened the Spirit of Innovation, the small plane took off for the first time earlier this month and successfully managed a 15-minute long test flight. However, the company has announced plans to fly the machine faster than 300 mph (480 km/h) before the year is out, and also to sell similar propulsion systems to companies developing electrical air taxis or small commuter planes.

New aircraft designs

Airlines are also upgrading aircraft design to become more eco-friendly. Air France just received its first upgrade of a single-aisle, medium-haul aircraft in 33 years. Fleet director Nicolas Bertrand told French daily Les Echos that the new A220 — that will replace the old A320 model — will reduce operating costs by 10%, fuel consumption and CO2 emissions by 20% and noise footprint by 34%.

International first class will be very nearly a thing of the past.

The pandemic has also ushered in a new era of consumer demand where privacy and personal space is put above luxury. The retirement of older aircraft caused by COVID-19 means that international first class — already in steady decline over the last decades — will be very nearly a thing of the past. Instead, airplane manufacturers around the world (including Delta, China Eastern, JetBlue, British Airways and Shanghai Airlines) are betting on a new generation of super-business minisuites where passengers have a privacy door. The idea, which was introduced by Qatar Airways in 2017, is to offer more personal space than in regular business class but without the lavishness of first class.

Aerial view of Rome's Fiumicino airport

Aerial view of Rome's Fiumicino airport

commons.wikimedia.org

Hygiene rankings  

Rome's Fiumicino Airport has become the first in the world to earn "the COVID-19 5-Star Airport Rating" from Skytrax, an international airline and airport review and ranking site, Italian daily La Repubblica reports. Skytrax, which publishes a yearly annual ranking of the world's best airports and issues the World Airport Awards, this year created a second list to specifically call out airports with the best health and hygiene standards.

Smoother check-in

​The pandemic has also accelerated the shift towards contactless traveling, with more airports harnessing the power of biometrics — such as facial recognition or fever screening — to reduce touchpoints and human contact. Similar technology can also be used to more efficiently scan physical objects, such as explosive detection. Ultimately, passengers will be able to "check-in" and go through a security screening anywhere at the airports, removing queues and bottlenecks.

Data privacy issues

​However, as pointed out in Canadian publication The Lawyer's Daily, increased use of AI and biometrics also means increased privacy concerns. For example, health and hygiene measures like digital vaccine passports also mean that airports can collect data on who has been vaccinated and the type of vaccine used.

Photo of planes at Auckland airport, New Zealand

Auckland Airport, New Zealand

Douglas Bagg

The billion-dollar question: Will we fly less?

At the end of the day, even with all these (mostly positive) changes that we've seen take shape over the past 18 months, the industry faces major uncertainty about whether air travel will ever return to the pre-COVID levels. Not only are people wary about being in crowded and closed airplanes, but the worth of long-distance business travel in particular is being questioned as many have seen that meetings can function remotely, via Zoom and other online apps.

Trying to forecast the future, experts point to the years following the 9/11 terrorist attacks as at least a partial blueprint for what a recovery might look like in the years ahead. Twenty years ago, as passenger enthusiasm for flying waned amid security fears following the attacks, airlines were forced to cancel flights and put planes into storage.

40% of Swedes intend to travel less

According to McKinsey, leisure trips and visits to family and friends rebounded faster than business flights, which took four years to return to pre-crisis levels in the UK. This time too, business travel is expected to lag, with the consulting firm estimating only 80% recovery of pre-pandemic levels by 2024.

But the COVID-19 crisis also came at a time when passengers were already rethinking their travel habits due to climate concerns, while worldwide lockdowns have ushered in a new era of remote working. In Sweden, a survey by the country's largest research company shows that 40% of the population intend to travel less even after the pandemic ends. Similarly in the UK, nearly 60% of adults said during the spring they intended to fly less after being vaccinated against COVID-19 — with climate change cited as a top reason for people wanting to reduce their number of flights, according to research by the University of Bristol.

At the same time, major companies are increasingly forced to face the music of the environmental movement, with several corporations rolling out climate targets over the last few years. Today, five of the 10 biggest buyers of corporate air travel in the US are technology companies: Amazon, IBM, Google, Apple and Microsoft, according to Taipei Times, all of which have set individual targets for environmental stewardship. As such, the era of flying across the Atlantic for a two-hour executive meeting is likely in its dying days.

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