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Posted on: The Economist | April 6th, 2017
The territory’s best future is to remain China’s superconnector
ON THE OBSERVATION deck atop the Diwang building in Shenzhen you can see two large wax figures depicting Deng Xiaoping and Margaret Thatcher enjoying cups of tea. The two leaders negotiated the handover of Hong Kong to China, which eventually took place in 1997. At the time, Mrs Thatcher was criticised by some at home for relinquishing the empire’s last great colony to the communists (Prince Charles reportedly described China’s leaders as “appalling old waxworks”). The more obvious worry was that Hong Kong’s rule of law and its free-market economy would be crushed by the hard men in Beijing.
The critics underestimated the Iron Lady. She got a deal that preserved much of what was good about old Hong Kong, and which has served the entire PRD well. Though China gained sovereignty over the territory, it promised to respect its governance for 50 years, a system that was dubbed “one country, two systems”. This has held up far better than had been predicted.
But as the 20th anniversary of the handover on July 1st approaches, Hong Kong is wondering about its future. Many locals are unhappy about being ruled by the mainland, with some activists even calling for independence. Economic growth is sluggish. Twenty years ago Hong Kong’s economy accounted for 16% of the Chinese total, dwarfing the rest of the delta. Now it makes up barely 3% of China’s GDP and less than half of the PRD’s economic output.
Anthony Yeh of the University of Hong Kong once described the city as the PRD’s roaring “dragon head”. As the delta’s main source of capital and provider of manufacturing and commercial services, the city was responsible for much of the region’s division of labour and globalisation. Now he worries that Hong Kong may become as irrelevant to the global economy as England’s once-mighty Liverpool.
Decline is not inevitable, but Hong Kong is constrained by its political situation. It has no prospect of becoming independent, though its efforts to strengthen democracy and protect local laws and institutions from mainland interference have been well worthwhile. On the economic front, its role is that of a global connector for the delta, adapting and upgrading links to reflect the changing times.
Hong Kong is a “highly complex, semi-permeable membrane” that modulates the impact of globalisation on the mainland, argues George Yeo, the boss of Kerry Logistics and a former trade minister of Singapore. “China doesn’t want to harmonise with the world completely, because it makes domestic governance difficult.” That is why Hong Kong remains vital to the future of both the PRD and China.
For all the local anguish, it is worth remembering that Hong Kong is the freest economy on Earth. In February the Heritage Foundation, an American think-tank, published its latest ranking of economic freedom, based on factors ranging from property rights and absence of corruption to mobility of labour and capital. Hong Kong once again came top.
The city’s commitment to international legal and accounting norms has made it a global financial centre. Its lawyers, accountants and investment bankers are able easily to connect foreigners with mainlanders. Mainland companies make up perhaps half the market capitalisation of the Hong Kong stock exchange. The city is the leading offshore centre for trading the yuan and the conduit for much of the foreign investment undertaken by mainland firms.
Say it with culture
Cultural offerings are not controlled by the Communist Party. That is a good thing in itself, but when combined with the city’s knack for making markets, it is also an economic asset. The territory is now a global trading hub for wine and art, even hosting its own version of the influential Art Basel show.
The West Kowloon Cultural District, a massive arts centre now under construction, may be the world’s most ambitious cultural undertaking since the Centre Pompidou was built in Paris 40 years ago. It complements a design-focused complex being built in Shenzhen, which will house a collection curated by London’s Victoria & Albert Museum. “I see the PRD emerging as an art destination,” says the V&A’s Luisa Mengoni.
This cultural dynamism makes Hong Kong attractive to global talent. Nicholas Yang, Hong Kong’s innovation secretary, notes that of the city’s nearly 2,000 startups, perhaps half were founded by foreigners. Visas are easy to get, English is widely spoken, there is little red tape and half the world’s population lives within no more than five hours’ flying time from the city’s airport.
Still, pessimists and pettifoggers abound. For such folk, the dramatic rise of DJI, the drone multinational mentioned earlier in this special report, confirms that Shenzhen has eclipsed their city. Yet a closer look reveals a reassuring symbiosis. Frank Wang, DJI’s mainland-born founder, studied at the Hong Kong University of Science and Technology. Li Zexiang, his robotics professor there, was an early investor and now serves as the firm’s chairman. And when DJI wanted to let global travellers try its drones, it decided to open an “experience zone” at Hong Kong’s airport.
The battle for freedom in Hong Kong could prove a bellweather of political change in China. Economic freedom has not so far brought political freedom on the mainland, but if it did, the PRD would in all probability be in the vanguard. Until the distant day when China unchains its economy, frees its currency and ungags its people, the two-way flow of people, capital and ideas through this semi-permeable membrane will continue to play an essential part in the delta’s future.