August and September are usually busy months for clothing trader Michael Hui Wah-kit, whose international clients arrive in Hong Kong for fashion shows and trade events.
Buyers from Australia and Europe come to him for the latest casual wear produced by his suppliers on the Chinese mainland and in Southeast Asia.
This year, two long-time clients decided not to come, put off by the ongoing anti-government protests in Hong Kong. They told him they would just go online and choose what to buy.
“It’s worrying because if they can do it over the internet, they can deal directly with the manufacturers and won’t need us any more,” said Hui, managing director of Freedom Industrial Corporation, founded in 1973.
Hong Kong entrepreneurs with factories in Guangdong province say their customers have been affected too.
Dennis Ng Kwok-on, whose Dongguan factory supplies chemicals and machinery to overseas buyers, said: “My clients from Britain, Southeast Asia and Taiwan would now rather fly to Shenzhen. We pick them up and head to Dongguan for meetings.”
Although moving his meetings has not affected business, the Hongkonger minds that his customers are avoiding the city.
“We still hope Hong Kong can be stable and prosperous. We don’t want our city to be like this,” he said, referring to the past three months of unrest, which has included episodes of violence and a shutdown of the city’s airport.
“This is not good for Hong Kong,” he said.
Businesspeople like Hui and Ng have also begun wondering if the turmoil will have an impact on China’s ambitious Greater Bay Area plan to turn Hong Kong, Macau and nine Guangdong cities into a financial and technological hub to rival California’s Silicon Valley by 2035.
Some ask if Hong Kong may find itself frozen out of the plan and risks being eclipsed by Shenzhen if the unrest continues indefinitely and Beijing’s patience runs out.
Under a blueprint unveiled in February this year, Hong Kong, Macau, Shenzhen and Guangzhou are the four central cities of the bay area project.
The bay area has a population of about 70 million; its total GDP of about US$1.5 trillion contributed approximately 12 per cent of China’s GDP in 2018, placing it alongside the Greater Tokyo and New York metro areas in terms of economic power.
The blueprint acknowledges Hong Kong’s leading position as a major international financial, trade, transport and aviation hub. It sees Hong Kong developing its innovation and technology industries, while entrenching its position as a reputable centre in the Asia-Pacific region for international legal and dispute-resolution services.
The plan also recognises that Hong Kong, governed by Beijing under the “one country, two systems” principle since its return from British rule in 1997, offers an international business environment based on the rule of law.
TOP SPOT THREATENED
However, the blueprint was unveiled before mass protests broke out in Hong Kong against an extradition bill to allow the transfer of fugitives to jurisdictions with which the city has no extradition arrangement, including mainland China.
Although Chief Executive Carrie Lam Cheng Yuet-ngor has since shelved the bill, the unrest has continued, with protesters demanding the withdrawal of the legislation and that the government retract its characterisation of protests as riots; withdraw criminal charges against protesters and release those still arrested; hold an independent inquiry into the actions of the police; and implement universal suffrage.
What started as peaceful marches in June has evolved to include violent clashes with police, the storming and trashing of the city legislature and the defacement of China’s national emblem outside Beijing’s liaison office in the city.
Earlier this month, hundreds of flights were cancelled and thousands of travellers stranded when demonstrators occupied the departure hall of Hong Kong International Airport. Travellers, Beijing authorities, and business and aviation groups condemned the disruption.
With no end in sight to the protests, questions hang over Hong Kong’s position in the bay area plan. Some say the city risks being sidelined if Beijing is tested to the point that it decides to bank on Shenzhen to ensure the project’s success.
“The GBA plan will go on, but which city will be the emphasis? I think Hong Kong is no longer the most important player in the plan,” said Dennis Ng Wang-pun, president of the Chinese Manufacturers’ Association, a major business chamber in Hong Kong.
Shenzhen is regarded as a contender given its transformation from a backwater border town to a high-rise metropolis of 13 million in the four decades since China opened up its economy.
Today, it is a hi-tech capital and home to digital giants Huawei and Tencent, and leading innovation firms BGI and BYD.
Last year its gross domestic product grew to HK$2.87 trillion (US$365.8 billion) based on the official exchange rate, meaning that for the first time it was bigger than Hong Kong’s, which hit HK$2.85 trillion.
Ng said the central government could roll out the reforms needed to turn Shenzhen into China’s third international financial centre, after Hong Kong and Shanghai.
“Shenzhen will follow in Hong Kong’s footsteps of success, and improve on logistics and ports as well,” he said.
Ng said the ongoing protests not only discouraged foreigners from visiting Hong Kong for business, but also made the city less attractive to young people from mainland China and abroad.
“I know some mainland bankers and financiers whose children are studying in Britain and other foreign countries. These people love Hong Kong and wanted to send their children here, but now their children are more likely to stay where they are,” Ng said.
A TALL ORDER FOR SHENZHEN
But others say replacing Hong Kong is easier said than done. The former British colony of 7.4 million has major strengths which are difficult to match, let alone surpass.
In finance, 75 of the world’s top 100 banks operate in the city. The Global Financial Centres Index released by British think tank Z/yen in March named Hong Kong the world’s No 3 international financial hub, behind New York and London, and ahead of Singapore and Shanghai. Beijing was ranked ninth and Shenzhen 14th.
In aviation, Hong Kong International Airport handled nearly 75 million travellers last year. More than 120 airlines connect the city with over 220 destinations worldwide – including more than 50 in mainland China. A third runway is being built, and the number of passengers is expected to hit 105 million by 2030.
In comparison, Shenzhen Baoan airport is connected to 180 destinations, mostly within China, and handled 45 million passengers in 2017. Guangzhou Baiyun International Airport handled 69.7 million passengers in 2018. Eighty airlines fly from there to about 200 destinations, including about 90 regional and international ones.
In higher education, Hong Kong universities outshine Guangdong’s. In the latest QS World University Rankings, released in June and covering 1,000 universities, five Hong Kong universities were in the top 100, with the University of Hong Kong doing best at No 25.
Guangzhou’s top college, Sun Yat-sen University, ranked 287th, while Shenzhen University was placed in an unranked band of those placed between 701 and 750.
All these and more keep some Hong Kong businesspeople, politicians and academics confident the city will remain indispensable to Beijing. Far from being in danger of being sidelined, they say, the city has become more critical in light of the escalating trade war between the United States and China.
Michael Hui, the clothes trader, said that as the trade war continues the bay area plan and the mainland will become a more important market for Hong Kong businesses.
“Shenzhen has expanded phenomenally in recent years to become China’s innovation and technology centre, but still faces plenty of restrictions,” said Hui, who also chairs the Small and Medium Enterprises Committee, which advises the government on trade and industrial policies.
“Hong Kong’s biggest strength is our financial system, which allows the free flow of capital in and out of the city. The GBA plan must rely on this, especially at a time when the US is trying to contain China with tariffs and other means,” he said.
Despite some of his customers avoiding Hong Kong because of the protests, he is confident the city will retain a unique role in the Chinese economy.
“I don’t think Beijing is rethinking Hong Kong’s position,” he said.
FINANCIAL CENTRE STATUS SECURE
Other observers find it hard to believe the anti-government protests, openly anti-mainland and distrustful of Beijing, will have no effect on the central government’s view of Hong Kong.
So when Beijing unveiled details of wide-ranging reforms for Shenzhen earlier this month, they felt the central government was already acting to boost the Guangdong alternative to Hong Kong.
Under the bay area plan, Shenzhen was meant to build on its leading role as a national innovation hub and aim to become a global centre of innovation and creativity. On August 18, however, Beijing announced significant reforms in the city’s legal, financial, medical and social sectors, among others, to help it achieve comprehensive economic competitiveness by 2035.
It has also been set the target of achieving global standards of competitiveness, innovation and influence by the middle of the century.
Eddy Li Sau-hung, president of the Hong Kong Economic and Trade Association, a non-governmental organisation that studies the city’s relationship with the mainland, believes these plans indicate Shenzhen could become the leading city in the Greater Bay Area in the foreseeable future.
But Witman Hung Wai-man, principal liaison officer for Hong Kong in Shenzhen’s Qianhai special economic zone, urged against reading too much into Beijing’s detailed plans for Shenzhen.
He pointed out that the plans had been in the works for more than a year, and were approved by President Xi Jinping when he visited Shenzhen last October to mark the 40th anniversary of national economic liberalisation.
There are three conditions for an international financial centre to be established: the liberalising of the yuan capital account; the lifting of foreign exchange regulations; and the free flow of information. How could Shenzhen catch up in these aspects?
Hung said that, even with the rise of Shenzhen, Hong Kong would remain irreplaceable for Beijing over the next two decades.
“There are three conditions for an international financial centre to be established: the liberalising of the yuan capital account; the lifting of foreign exchange regulations; and the free flow of information. How could Shenzhen catch up in these aspects?” he said.
Ronick Chan Chun-ying, who represents the banking sector in Hong Kong’s Legislative Council, said the city’s financial system and rule of law were strengths that remained intact despite three months of turmoil, and should continue to be emphasised.
Chinese University economist Terence Chong Tai-leung agreed, saying governments could develop new centres of technology by pouring in money and providing land to investors, but money and land were not as important as sound policies when it came to establishing a financial centre.
“Hong Kong can allow the free flow of capital and personnel in and out of the city, but it would be difficult for Shenzhen to do the same,” he noted. He said Beijing’s more detailed plans for Shenzhen had mainly to do with “improving some weaknesses, such as its mechanisms for resolving commercial disputes”.
Government sources on both sides of the border say that, even if Hong Kong retains its position in the bay area plan, anti-mainland Chinese sentiment in the city will make cross-border cooperation harder than anticipated.
A Beijing official close to the central government’s policymakers for Hong Kong said mainland authorities had grown wary of working with the city because of the current political sentiment.
“How can we get other places to be confident about working with Hong Kong? All of a sudden, things could be called ‘too sensitive’,” the official said. “Some mainland cities will not dare make deals with the Hong Kong government.”
Indeed, banking sector lawmaker Chan revealed that the Chinese Banking Association’s scheduled visit to several Guangdong cities in early September had to be postponed, as it was feared that mainland partners were becoming more wary. “Any measures announced during these turbulent times, including during the trip, would be ineffective, and there are worries that these may stir up negative interpretations among citizens,” he said.
A senior Hong Kong official involved in policymaking for the bay area plan said the politically sensitive atmosphere in Hong Kong meant both local and mainland governments had to handle cross-border issues with extra care, and constantly put themselves in each other’s shoes.
As a national strategy, the bay area scheme is unlikely to change, the official said, adding that more communication and cooperation were needed between Hong Kong and the mainland cities involved.
Speaking on condition of anonymity, a senior official at the Guangdong Development and Reform Commission, a powerful department in charge of implementing the bay area plan in the province, said it would be hard to convince mainland authorities Hong Kong can still take the lead in the plan, given the ongoing protests.
“There is an impact on Beijing’s assessment. If a city’s transport infrastructure is not reliable, it is very hard to consider it a transport hub,” he said, referring to the airport disruption.
“Shenzhen is probably going to be the leading city of the GBA plan for now. Hong Kong needs to restore not only law and order but the confidence of mainland China.”
The official also said the nine Guangdong cities included in the plan were already working among themselves to implement it, and could not afford to wait for Hong Kong.
Businessman Irons Sze Wing-wai, a Hong Kong delegate to the Chinese People’s Political Consultative Conference, said the city government had its work cut out.
“We have to promote the GBA project and let people know they will benefit from taking part in the mainland’s economic growth,” Sze said.
A host of benefits are envisaged for Hong Kong as it integrates further with the mainland economy and taps the market there. Cultural and entrepreneurship programmes are expected to draw young Hongkongers to visit, study or work in mainland cities.
Given Hong Kong’s severe housing shortage, some politicians have spoken of the bay area plan’s potential to provide young people with more housing options.
Beijing has promised lower taxes and more subsidies for professionals and entrepreneurs from Hong Kong and Macau who work in the nine mainland cities that are part of the bay area project.
Lau Siu-kai, vice-chairman of the Chinese Association of Hong Kong and Macau Studies, a semi-official think tank, said that even though Hongkongers might not be in the mood to hear about prospects on the mainland, the government still had to tell them what the bay area plan promises.
“We are not pushing young people to go to mainland cities,” he said, adding that the authorities had to inform and train young Hongkongers, so they know what is available in the GBA and can take advantage of it.
Hong Kong should change its mindset. It must not assume that Western countries will always be friendly to the city
Lau Siu-kai, Chinese Association of Hong Kong and Macau Studies
Lau thought it unlikely Beijing would run out of patience with Hong Kong if the economy declined because of the protests, and decide to punish the city by downgrading its role in the bay area plan.
“Beijing did not come up with its latest plan for Shenzhen in the last two months,” he said. “It has always wanted to adopt the Hong Kong model in more mainland cities.”
For Beijing, political stability trumps all else. The limits of its patience would be over sovereignty, its ultimate bottom line.
“If Hong Kong becomes a political liability, Beijing could rethink whether the principle of ‘one country, two systems’ remains the best model for the city, or whether a stronger government is needed so the capitalist city can remain stable and attractive to businesses,” Lau said.
Rather than worry about being surpassed by Shenzhen, he said, Hong Kong’s officials need to ensure a return to stability and be alert to the possibility that the bay area plan could be undermined by the US-China trade war.
“Western countries are stopping China from importing their technology. Hong Kong’s economic significance for them is also diminishing as the city is getting closer with the mainland,” he warned.
“Hong Kong should change its mindset. It must not assume that Western countries will always be friendly to the city.”
Agreeing, economist Chong said Shenzhen’s technological development would be undermined if the US continues to target tech companies based there, such as Huawei. Hong Kong cannot escape being affected if Washington elevates the trade war into a financial or fiscal war, he added.
To make the bay area plan work, he said, Hong Kong’s government had to work closely with the mainland authorities.
“Basically, we need to be in harmony with the mainland,” he said. “Without both governments’ support, the GBA plan is just a bunch of cities that are close to one another. But with official leadership, it can help to improve Hong Kong’s economy, and even education and health care.”
But what about the support of ordinary people for the bay area plan? Shrugging off concerns that young Hongkongers may not be interested in the bay area scheme, he said: “There are different types of people, even among those willing to visit the mainland.”
Sharing that outlook, Sally Yeung Ching, a deputy secretary general of the Hong Kong Chinese Importers’ and Exporters’ Association, was confident that, as the bay area plan takes off, Hongkongers will see its worth.
“Our young people are very talented,” she said. “Enough of them will realise there are many opportunities waiting for them locally and on the mainland.”
Other articles in this series have analysed Taiwan’s high stakes in the Hong Kong protests , what Hong Kong protesters really want, why protesters view the police as the enemy, how Hong Kong police are holding the city back from the brink, how leaders have spurned the chance to listen to public opinion, how Beijing keeps getting Hong Kong wrong, the trouble with trying to turn Hong Kong’s young people into ‘patriotic youth’, and how young, educated mainland Chinese are questioning their place in the city
Additional reporting by William Zheng and Danny Lee