Is it really so utterly unthinkable that Hong Kong could ever be more than an ideological battleground between the United States and China? Long-time residents such as Bloomberg’s Matthew Brooker think so. Traders who have been driving Hong Kong Exchanges and Clearing (0388.hk) higher this week think so. The American Chamber of Commerce in Hong Kong is not quite sure, but would like to think so.
Why? Because the two countries have too much skin in the game? Is that really the best explanation that can be offered for why financial decoupling is unlikely? If so, it is weak thinking at best, complicit at worst.
The traders are easiest to forgive for not exercising their imaginations. Nevermind that HKEX is a tougher club to join than the Nasdaq for many reasons, as pointed out by the SCMP’s Enoch Yiu. These investors clearly believe a gaggle of Chinese tech IPOs are winging their way to Hong Kong, free of cyber-reviews, and that the mass migration of listed Chinese firms from New York is also imminent.
They are just following the best advice money can buy, of course. As an FT report notes, investment bankers are desperately trying to salvage lucrative IPO fees by repackaging their New York hopefuls for Hong Kong. This is despite the odds of success, as one source said: “If you want to do a deal this year, at best you’ll be delayed until 2022 and at worst you won’t be able to do it.”
Nevertheless, they deserve sympathy. None of these people could reasonably be expected to wonder whether HKEX might now be seen by American national-security hawks the same way a target moving into the open draws a bead from a Predator 30,000 feet above.
The American Chamber of Commerce has released a thoughtful, in-depth position paper on the situation in Hong Kong, which it has presented for CE Carrie Lam’s consideration, ahead of her Policy Speech, scheduled for next month.
At 16 pages, in small type, it’s not a quick read. Nevertheless, its detail is impressive, with concrete, specific recommendations across many sectors of the economy and society.
The American Chamber of Commerce in China has released its Second Joint Survey on the Impact of Tariffs. The survey received nearly 250 responses, with 61.6% manufacturing-related, 25.5% services, 3.8% retail and distribution, and 9.6% from other industries.
The negative impact of tariffs is clear and hurting the competitiveness of American companies in China. The vast majority (74.9%) of respondents said the increases in US and Chinese tariffs are having a negative impact on their businesses.
To cope with the impact of the tariffs, companies are increasingly adopting an “In China, for China” strategy (35.3 percent), or delaying and canceling investment decisions (33.2 percent). In China, for China is a strategy to localize manufacturing and sourcing within China to mainly serve the China market.
While over half of respondents (53.1%) have not seen any increase in non-tariff retaliatory measures by the Chinese government, roughly one in five have experienced increased inspections (20.1%) and slower customs clearance (19.7%).
Approximately 40.7% of respondents are considering or have relocated manufacturing facilities outside China. For those that are moving manufacturing out of China, Southeast Asia (24.7%) and Mexico (10.5%) are the top destinations.
The Greater Bay Area’s economic development model should not be other so-called “Bay Area” economies such as Tokyo, New York and San Francisco. It would be better to look at South Korea in the short term and Germany in the longer term. This is the view of Michael Enright, the Hong Kong University professor who is widely acknowledged as the leading international expert on the region’s development.
Speaking at an event organized by Amcham South China in Guangzhou today, Enright painted a bullish picture of the GBA’s future. When one looks at the resources available here, the connectivity that has been built between the region’s cities, and policy changes under way, he sees a unique opportunity for international investors. “The GBA will be a bellwether for the future of the world economy,” Enright said. “It will be at the center of the global economy. Not being here at this time. would be worse than having not been in Germany [in the post-war period].”
South Korea is the more rational choice for a role model in the near term, however, Enright said. Like that country, the GBA has an integrated economy where multinationals can locate: world-class finance and HQ operations, next to world-class R&D facilities; next to advanced manufacturing facilities; next to world-class logistics facilities; next to a consumer market of nearly 80m people. And now it is getting a turbo-boost from infrastructure development that is bringing travel times for goods and people into a range that will facilitate strong growth going forward.
Will the GBA double its GDP by 2030, or by 2035? The question is moot, Enright says. It will happen, just as it has happened everywhere else in the world that has faced a similar development path.
We will have a follow-up interview with the professor in the near future. In the meantime, check out his consulting company page .