China realizes Hong Kong’s economic benefits

Given its crucial role as an investment gateway to mainland China, Beijing is striving to appease a sullen Hong Kong during the visit of high ranking Chinese official, Zhang Dejiang, who chairs China’s
communist-controlled legislature.
The world’s second largest economy is set to strike a compromise between the strategic position of Hong Kong as an investment hub on one hand, and its political grievances regarding freedoms, on the other.
So, Dejiang is ready to listen to the grievances of Hongkongers and address the ailing economy of Hong Kong. Its share of combined GDP fell from 16 percent in 1997 to only 3 percent last year, as growth on the mainland has far outpaced that of the former British colony. In terms of exports, Hong Kong’s share fell from 51 percent to 17 percent over the same period.
But this is not a broader picture. On record, Hong Kong has played a significant role in connecting mainland China to the rest of the world.
Hong Kong has been a gateway for China to absorb technological and management expertise. “The credibility of the ‘one country, two systems’ arrangement has also given foreign investors a sense of comfort and safety,” points out Zhu Ning, deputy dean of the Advanced Institute of Finance at Shanghai Jiaotong University.
Chinese leaders are aware that their economy has been amalgamated into global economy since 1997 when Hong Kong became part of China, though autonomous. Since then, China became an economic giant and surpassed Japan to become the second largest world economy.
Reaping rich benefits of Hong Kong’s status, the Hong Kong-Shanghai Stock Connect has allowed investors in both cities to access each other’ equity markets. Chinese leaders have been using Hong Kong as a starting point for the broader project of opening up China’s capital markets to the outside world.
There is another benefit too. Reserve and less transparent China learnt more from Hong Kong. Listings in the territory have forced mainland businesses to increase transparency and improve their corporate governance to satisfy
foreign investors.
Beginning around 2009, China established Honk Kong as the premier centre for offshore trading in the Chinese currency. Since 2012, Chinese companies have raised $43 billion in initial public offerings in the Hong Kong market versus just $52 billion on mainland exchanges.
The list of benefits seems endless. Hong Kong has also provided Chinese companies with access to global capital markets for bond and loan financing. Hong Kong is the key hub for investments in and out China. It accounted for two-thirds of foreign direct investments into China last year, up by from 30 percent in 2005.
The Chinese government has made the city a testing ground for a range of financial reforms; the yuan’s path towards acceptance as a global currency began in Hong Kong in 2009.
Dejiang will use the visit to reassure Umbrella Movement protesters so that Hong Kong returns to the growth track. It wasn’t accidental that the visit coincides with aid in the form of the biggest inflows from mainland investors. This was badly needed by Hong Kong’s stock market.
Special relationship benefits both sides. And this is what the Chinese leadership seems to have understood. Jeopardising this intertwine relationship would definitely hurt both the sides.