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China

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

Growing in Hong Kong
Growing in Hong Kong
Sun Bushou

-Analysis-

HONG KONG — "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.

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Hong Kong cityscape — 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.

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In the streets of Hong Kong — 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 — 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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Photo of a sunset over the USS Nimitz with a man guiding fighter jets ready for takeoff

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-Analysis-

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Visiting Paris on Tuesday, Ukrainian Defense Minister Oleksïï Reznikov recalled that a year ago, the United States had refused him ground-air Stinger missiles deliveries. Eleven months later, Washington is delivering heavy tanks, in addition to everything else. The 'no' of yesterday is the green light of tomorrow: this is the lesson that the very pragmatic minister seemed to learn.

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