As ‘financier’ to Greater China, Hong Kong has an unbeatable edge

Victor Zheng and Roger Luk say the rise of China and the emerging economies will make Hong Kong’s role as a ‘connector’ irrelevant, and it’s time for the city to redefine its niche

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The city of Shenzhen is seen across Deep Bay in Lau Fau Shan, Hong Kong. Hong Kong started as a free port for Chinese trade, but today it is an offshore renminbi hub. This evolution reflects its traditional “connector” role giving way to that of a “financier”. Photo: EPA

Published: 4:53pm, 8 Aug 2017Updated: 8:08pm, 8 Aug 2017

The report “The World in 2050”, published earlier this year by PricewaterhouseCoopers, predicts that China and the emerging economies will overtake the US and developed economies as the global growth engine. Hong Kong will have entered its second 50 years of post-reunification, and this shift will call for an innovative role, given that its traditional role as a “connector” between the East and the West is fading.

The report forecasts that the emerging and developed economies together would still account for 70 per cent of the global gross domestic product by 2050, but they will swap positions. The “E7” (China, India, Russia, Brazil, Indonesia, Mexico and Turkey) would contribute 50 per cent; the G7 (the US, Japan, Canada, Germany, the UK, France and Italy) only 20 per cent.

If the forecast is correct, it would mean Hong Kong’s traditional connector role is at risk. As China pushes ahead with the Belt and Road Initiative, Hong Kong should reposition itself to provide support.

Belt and Road middleman role is a dead end for Hong Kong

Absent financial disruptions like the 1997 Asian crisis and the 2008 global crisis, emerging economies will catch up and overtake developed economies. Among the top 10, China would remain the leader and India would overtake the US to second place.

Men at work at a construction site in Jinan, Shandong province. China and the emerging economies will overtake the US and developed economies by 2050. Photo: Reuters

Among the top five, Indonesia would replace Japan in fourth place, and Brazil would take Germany’s fifth place. Growth in the G7 nations would be less than 2 per cent a year, with Germany, Italy and Japan’s growth dropping to around 1 per cent. Thus, a post-Brexit European Union would fall behind the UK.

As export growth slackens, emerging economies are restructuring ... China would gain most from this shift

The report reflects a new landscape in trade and a new order in finance after the 2008 global financial crisis. Developed economies are endeavouring to reverse prolonged low savings rates and high spending habits, and thus a structural trade deficit.