Hong Kong To Be Fast Tracked To RCEP Free Trade Agreement
By Chris Devonshire-Ellis
A Hong Kong pivot to North Asia proposed by Indonesia
Chinese Vice Premier Han Zheng has stated that Hong Kong will be supported by Beijing for Hong Kong’s early accession to the Regional Comprehensive Economic Partnership (RCEP) to expand regional economic cooperation. The RCEP agreement includes mainland China (but not Hong Kong) in addition to all ten ASEAN nations, as well as Australia, New Zealand, Japan, and South Korea. The move is significant as although Hong Kong has an existing FTA with ASEAN, that is being phased in from 2020 over a ten-year period. It has existing FTA with Australia and New Zealand, but not with Japan and South Korea. Hong Kong has numerous trade agreements with China under various ‘Closer Economic Partnership’ (CEPA) deals.
Beijing’s support for fast tracking Hong Kong into RCEP was given at the 7th Belt and Road Summit held in Hong Kong earlier this week. Hong Kong was not part of the original RCEP agreement as it has a different set of regulatory and tariff structures than mainland China and this requires specific alternative negotiation with the RCEP members.
Hong Kong’s Chief Executive, John Lee, said that as a global city, an international financial and trade center, and the business bridge between the Chinese mainland and the rest of the world, Hong Kong is ready to partner with Belt and Road companies and economies by providing essential project financing and professional services support, innovation and technology, capacity building, cultural awareness, wide-ranging connections and related services, indicating that it can become a hub for Chinese SOEs to partner financing with other RCEP countries for joint investments and opportunities along the Belt and Road Initiative.
Via the Hong Kong-China ‘wealth connect’ and ‘swap connect’ schemes, Hong Kong uniquely has access to mainland China’s estimated US$3 trillion in private wealth and is open for foreign investors and financial management professionals to advise on approved investment funds to channel this windfall. That will take experienced professionals from the Eurasian region familiar with BRI opportunities. While the city has experienced problems with strict quarantine and covid measures over the past three years, these can be expected to relax into 2023 allowing Hong Kong some breathing space to rebuild its professional and financial services capability and replace some of the Western talent it has lost with more regional talent.
Other ASEAN nations have also called for an alternative approach to Hong Kong’s purely being a gateway for China’s SOE’s. Indonesia’s sovereign wealth fund has called for the territory to expand its reach to become a gateway for North Asia for ASEAN.
Dr Ridha Wirakusumah, Chief Executive Officer at the Indonesia Investment Authority (INA) — has said that a stronger post-Covid Hong Kong should pivot towards Southeast Asia, opening up valuable Southeast Asian markets for North Asia. “It’s extremely obvious that post-Covid Hong Kong should resurrect itself again as one of the (region’s) most important financial centres, [and not lose] out to the other financial centre which happens to be Singapore. I’m not one to underplay Singapore because it’s also very, very important to us, but I think Hong Kong offers so much more in terms of size and also access to North Asia.”
Wirakusumah said during a session on fostering trade and investment connectivity in the RCEP (Regional Comprehensive Economic Partnership) that while Hong Kong and Singapore shared a similar GDP, Hong Kong’s stock exchange was eight times the size of Singapore’s. “As such, it’s a lot more powerful in terms of raising financing,” he said, adding that the only missing piece for Hong Kong was an active trade with Southeast Asia. “If you look at the North Asian grouping — namely Hong Kong, China, Taiwan, Japan, and South Korea — you’ll notice that they are mostly developed, and they are richer countries than their Southeast Asian counterparts. However, the Southeast Asian counterparts make up for these shortcomings by their exciting growth and their youth demographic.”
“If Hong Kong can actually take a lot more proactive role in going into and understanding what Southeast Asia needs, I think the Southeast Asian countries would appreciate not only the capital but also the expertise and the technologies it provides.”
Southeast Asia, he said, could provide an unbelievable market for many of North Asia’s advances in technology and digital for example, which then becomes mutually beneficial for both regions.