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As the US-China trade war bites, Hong Kong’s economic survival rests on its liberal values
- Hong Kong needs to trim its dependence on the services sector, accelerate research and development, and open up new growth paths — and key to its economic survival are its fundamental values of personal and judicial freedoms
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Hong Kong’s economy is facing an existential challenge, as the liberal economic order in which it has historically thrived is under siege.
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Even if China and the United States called a temporary truce in their trade and technology conflict, future bilateral relations will be marked by more competition and less cooperation. Nativist and protectionist sentiments are on the rise in the US, with growing bipartisan support for a tougher stance on China and broad-based dissatisfaction with globalisation. China has doubled down on industrial policy and technological self-reliance.
The pendulum will not swing back any time soon. An economic order that favours national champions and technological sovereignty over global interdependency and cooperation is taking hold. This will be the “new normal” in which Hong Kong operates. Trade-related services sectors will stagnate.
Overseas businesses looking to retreat from or reduce operations in China are likely to have to move investments out of Hong Kong. Even Hong Kong’s special trade status under the US-Hong Kong Policy Act may be on shaky ground if the city becomes a pawn in the US-China conflict.
While Hong Kong has little control over its external circumstances, it can pursue a more diversified growth path. First, it should continue to accelerate research and development, building on the government’s HK$20 billion (US$2.56 billion) injection into the Research Endowment Fund, while also expanding prototyping and pilot production as part of its transition to becoming a more innovation-driven economy.
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