Snooze and you lose

SCMP July 15 2008


Hong Kong's leader seems oblivious to the threats of ambitious Taiwan and Shenzhen

When will Donald Tsang Yam-kuen and his fellow bureaucratic bumblers wake up to the challenges posed by both Taiwan and Shenzhen? While our chief executive seeks to demonstrate his late-in-life patriotism to Beijing by downplaying Hong Kong's vital element - its difference - the leaders in Shenzhen and other cities in Guangdong are focused on grabbing as much of Hong Kong's business as they can. Quite rightly, they do not need to wear patriotism on their sleeve but see their job as championing their cities' development.

As for Taiwan, it is just beginning to wake up to the potential that it possesses to compete with Hong Kong in many areas of international commerce from which it has been excluded both by the lack of cross-strait links and protection of inefficient local service industries.

Take Taiwan first. The threat is not the loss of air traffic and some visitors from direct flights. Taiwan accounts for only 14 per cent of flights and not all are transit. Hong Kong will also remain the main gateway for Taiwanese access to their industries in the Pearl River Delta. Likewise, the loss of some of the port transshipment trade from Taiwan to the mainland - 7 per cent of containers from Hong Kong to the mainland - would be a minor problem compared with the existing competition from nearby mainland ports. Direct links could revive Kaohsiung's hub role but now more at the expense of mainland ports than Hong Kong.

Direct links are not all a plus for Taiwan itself. With mainland pressure to induce firms to add more value locally, Taiwan's export manufacturing may continue to migrate, posing problems for a sluggish domestic economy. But that alone could be a huge stimulus for Taiwan's long-languishing services sector. Its services exports are just 8 per cent of gross domestic product, compared with Hong Kong's 41 per cent. Yet, a combination of cross-strait access with easier admission for foreigners, the abolition of bureaucratic restrictions - plus the stimulus of mainland tourism - will make a big difference.

Just start with finance. The lack of mainland access has long stymied Taiwanese banks and insurance companies - some large and well run - causing firms to hold much of their export proceeds offshore, while forcing companies such as Foxconn International to list in Hong Kong. Yet Taiwan has a strong currency, the region's most stable economy and a range of moderately valued listed companies which sooner or later will attract mainland money to its market, and will probably also cause Taiwanese money and maybe listings to return home.

With its location and transport infrastructure, expertise in a wide range of industries as well as IT, Taiwan has the potential to be a much bigger services centre for the region as well as the mainland. It has - thanks to the demands of its electorate - relatively clean air, and a lively Chinese cultural scene, devoid of the self-censorship found in Hong Kong. There are many reasons why, given a chance, wealthy mainlanders would rather take a holiday or get medical treatment in Taipei than expensive, polluted Hong Kong. It has drawbacks, such as poor English-language skills, and it will not be able to compete in areas like legal services. But its Putonghua is better, and links with Japan - and Silicon Valley in the US - are excellent.

So, the more Hong Kong becomes like Shenzhen, the greater the merits of Taiwan will be, assuming that it can develop its mainland ties while preserving its real (as opposed to notional) autonomy.

Shenzhen, meanwhile, is - naturally - trying to steal some of Hong Kong's clothes, aiming to become - according to reports of a Communist-Party-approved blueprint - more of an 'international city'. It aims to boost co-operation with Hong Kong in 'finance, logistics and trade'. Integration, here we come. Sadly, Hong Kong's leader has delusions of grandeur, believing that a bigger metropolis is a better one. He also has a habit of agreeing to almost anything proposed by Shenzhen when couched in terms of co-operation and the 'one-country' principle, when they are mostly based on Shenzhen's interests. Examples from ports to road links, to the bridge and the Lok Ma Chau loop, are numerous. Meanwhile, Hong Kong hides from its own pollution failings by passing the buck to its neighbours.

Unfortunately, Hong Kong seems doomed neither to have a leader who responds to democratic demands, nor a tough mainland big city boss who is not afraid of Beijing and is judged by what he can do for his city.





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