In thinking of its future, Hongkong  must think internationally, not be seduced by illusions about the Pearl River delta. SCMP


What does Hongkong want to be? Global City. Gateway to China."Dragon Head" of the Pearl River delta? Home from Home for Overseas Chinese? All of the above, you might say. But Hongkong cannot be all things to all people. It is faced with challenges which should be making its think harder about its role.

For sure, an open city-state economy cannot devise a precise blueprint for itself. To a large extent it can only prosper by taking advantage of opportunities as they arise. Nonetheless, government policy can give direction.. More open discussion is needed of the challenges facing the territory and the costs and benefits of different policies. Let us start with the issue of Taiwan. I was agreeably surprised to read James Tien's column in these pages (January 9) about the challenge which may soon be posed by direct Taiwan-Mainland air, shipping and banking links.

Hongkong mouths platitudes about the desirability of progress towards national reunification that direct links would represent, but is loath to consider a response to the economic consequences. I was in Taiwan at the time of the establishment of the mini-links and am not convinced that the major direct links are imminent. Political obstacles still outweigh the economic benefits. However prospects for links are greater than at time since 1995, and there is a 20% possibility of them happening within twelve months.

One should not exaggerate their short term impact. Though direct links would mean a loss of transit air traffic and Taiwanese tourism, much of that now goes via Macao anyway. The impact on shipping and manufacturing support for Pearl delta industries would not be significantly affected. Taiwanese firms are not going to move their factories from Dongguan to Xiamen. They will fly direct from Taiwan to Shenzhen rather than via Hongkong. But already Taiwanese companies are focussing more of their attention on the Shanghai region.

With links there would be direct connection between the financial markets of Shanghai and Taipei. Taiwan's capital surplus and active stockmarket are attractive to mainland firms, and many in Taiwan want opportunities for mainland portfolio investments. China's banks would like a presence in Taipei, and the island's free atmosphere makes it attractive for rich mainlanders. The way for Hongkong to respond to challenges from Shanghai, and a direct cross straits links, is surely to emphasise its uniquely international qualities rather than take refuge in being the biggest fish in the south China pond.

A lot of nonsense is being talked about the need to integrate Hongkong with the fast growing Pearl delta. Officials blithely suggest that this is an inevitable and patriotically desirable result of the return of sovereignty. Self-serving consultants make silly comparisons with the New York, Rotterdam or London conurbations, as though there could as easily be free movement of people and capital between Dongguan and Tsimshatsui as between Westchester and Manhattan. Lip service is paid to easing border restrictions and improving cooperation with authorities across the border. But the reality is that Hongkong's economic interests, as determined by income per head and asset prices, cannot be served by rapid integration with a region with vastly lower income, education and asset price levels.

Hongkong's advantage lies in providing high value added services to the delta, as to other parts of China and Asia, not in integration. It is amazing that the same people who talk about the desirability of integration are the same as those who most admire the Singapore example. Do they ever suggest that Singapore should "integrate" with Johore and Sumatra?

In practice of course people here do realize the dangers of Hongkong not keeping control of its borders. Retailers are worried about loss of business to Shenzhen, property developers about the impact on prices, especially in the northern New Territories, people about their jobs. As a result, while efforts are made to speed the movement of merchandise trade across the border, movement of people, such as necessary if Hongkongers are to commute across the border remains slow.

There are practical issues from water pollution to road planning where cooperation with the diverse authorities - SEZ, province, city etc - is desirable, in the same way that Singapore cooperates with Malaysia on such things But never forget that a city state has very singular needs, and that Hongkong's advantages of free trade, free speech, free movement of capital and easy access for foreigners cannot be replicated on the mainland for the foreseeable future. It is those advantages more than its geographical position at the Pearl estuary, which makes it a Gateway to China.

Sure, geography helps Hongkong capture the South China trade in particular. But any policy which gives precedence to the Guangdong connection will not only diminish Hongkong's wider advantages but probably imply increased overcrowding and pollution, increasing population rather than raising income per head and the quality of life.

Providing the highest value added services, whether to China or the region or the world, implies allowing full competition for those services, just as Hongkong once prospered from a manufacturing industry ready to take on the world, and has always benefited from freedom of foreign exchange. But is it moving to build on those strengths so that it can always offer advantages that Shanghai or Taipei cannot? Is it competing adequately in areas such as aviation where it should be gaining ground rather than trying to keep up with mainland ports in low-value added (and polluting) container trans-shipment?

There has been some progress, notably in opening up the telecoms sector - albeit more the result of technological change and US pressure than because the government wanted to stop protecting vested interests. However, lots more needs to be done to bring more business to Hongkong by breaking cartels. Landing rights is an easy and obvious one. The medical profession is another. People ought to come to Hongkong for treatment. At present many go overseas to avoid the local medical mafia. Education is another area where Hongkong ought to be a seller not a buyer of services but is hobbled by an overpaid tertiary teaching profession, and government bureaucracy.

Even financial services has been held back by vested interests, especially the stockbrokers. Information technology services are a bright hope. But the government does not seem to understand the implications of the cyber age which it purports to want to promote. It is now dreaming up desperate measures to thwart the internet to defend the revenue it collects from the often sleazy horse-racing business and to protect the monopoly of that citadel of monied snobbery, the Jockey Club.

Now the government is to legislate to prevent people from betting on races in Macao, and indeed from betting anywhere via the internet. This is the thin end of a huge wedge, infringing local liberties and introducing extra-territoriality, making it illegal to so something overseas which is legal here. Imagine if the US decided to disallow its citizens to deposit in Hongkong banks because of their reputation for drug money laundering! What is the difference from sending money and investment instructions from Hongkong to a bookmaker in Gibraltar from sending them to a bank in Bermuda?

The proposal is contrary to articles 112 and 115 of the Basic Law. If the legislature is dumb enough to pass it, let us hope that it is challenged in the courts. Are our officials too stupid to see the implications for Hongkong's freedoms and reputation? Or are they, as members of the Jockey Club, beneficiaries of its monopoly?. Whatever the case, instead of infringing on freedom of exchange and investment, why not open up the local gambling industry to competition? Why not allow other local outlets for local gamblers, and attract foreign gamblers to Hongkong bookmakers ?

Let the Jockey Club and others offer betting on football, elections, on everything including the winner of "the worst dressed bureaucrat" contest. Ending the monopoly and cutting betting taxes would increase turnover, and undercut illegal gambling and organized crime. The way ahead for Hongkong is to sweep aside vested interests so that all comers, be they from Beijing, Guangzhou, Tokyo, Frankfurt, New York, and Hongkong itself, will want to use its globally competitive, state-of-the-art services. ends




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