Hong Kong can reap the rewards of world’s biggest free-trade pact even as an outsider, analysts say

Cheryl Heng
·6-min read

The world’s biggest free-trade pact, signed on the weekend by China and 14 other Asia-Pacific nations, could help Hong Kong minimise the damage wrought on its economy by the souring of Washington-Beijing relations and the coronavirus pandemic, according to city analysts.

Business leaders and economists welcomed the deal for its potential to support Hong Kong’s economic recovery even with the city not among the signatories, while expressing hope the financial hub would soon become a member to fully reap the benefits, which include boosting trade with the likes of Japan and South Korea.

In a major coup for China, 15 countries on Sunday signed the Regional Comprehensive Economic Partnership (RCEP), an agreement excluding the United States and extending Beijing’s economic sway in the region.

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The founding nations include Japan, South Korea, Australia, New Zealand and the 10 members of the Association of Southeast Asian Nations (Asean).

While Hong Kong is not a member economy of the RCEP, the city has expressed an interest in entering negotiations to join.

Hong Kong is not a member economy of the RCEP, but has expressed an interest in joining the network. Photo: Winson Wong
Hong Kong is not a member economy of the RCEP, but has expressed an interest in joining the network. Photo: Winson Wong

In December last year, commerce undersecretary Bernard Chan Pak-li said the government had been “seeking Hong Kong’s accession to RCEP as its first new member economy”.

Among Hong Kong’s free-trade agreements currently in force are those with the Asean bloc and Australia. The city has signed similar deals with mainland China and New Zealand, but has yet to reach such agreements with Japan and South Korea.

Most SMEs have their manufacturing bases in China, so when China signs the agreement with other countries, it will be easier to export goods to these countries

Michael Hui, vice-president, Hong Kong Chinese Importers’ and Exporters’ Association

The Hong Kong General Chamber of Commerce’s chief executive, George Leung Siu-kay, said there would be advantages for Hong Kong whether it was a member or not.

“Hong Kong is an open and free economy with no tariffs or barriers, it is not necessary to be a member to benefit from it,” Leung said.

“However, the RCEP will put Hong Kong in a better direction forward, with growing trade and bringing more business to the city.”

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Lawmaker Felix Chung Kwok-pan, leader of the pro-business Liberal Party, said Hong Kong could extract gains from the pact even before becoming a member, in terms of logistics, trade and supply chains.

“There will be more trade between China and all the other countries and with China, which is one of Hong Kong’s largest trading partners,” he said.

“It would be better if Hong Kong is a real member instead … Japan and South Korea are two countries that Hongkongers love to visit, conduct trades and do business with, so it will be better if Hong Kong can be free-trade partners too.”

The RCEP is now the world’s largest trade bloc covering about 2.2 billion people and accounting for roughly a third of global economic output.

It is hoped that the agreement will result in a liberalisation of trade and tariff cuts across the Asia-Pacific region, the benefits of which will then flow to Hong Kong.

But business leaders and experts are split on whether that trickle-down effect will materialise.

Chinese Premier Li Keqiang (left) attends the signing ceremony of the RCEP agreement at the Great Hall of the People in Beijing. Photo: Xinhua
Chinese Premier Li Keqiang (left) attends the signing ceremony of the RCEP agreement at the Great Hall of the People in Beijing. Photo: Xinhua

Wenda Ma, an assistant principal economist at the Hong Kong Trade Development Council, believed that Hong Kong stood to gain from stronger regional cooperation and more unified trade rules.

She said that following the agreement, city businesses trading with multiple Asean countries would only need to comply with one set of rules and procedures. “Hong Kong companies may benefit from when they try to optimise supply chains in the region.”

Small and medium enterprises (SMEs) that have been buckling under the pandemic and associated travel bans have also been supportive of the wide-ranging trade deal.

Michael Hui Wah-kit, vice-president of the Hong Kong Chinese Importers’ and Exporters’ Association, said: “Most SMEs have their manufacturing bases in China, so when China signs the agreement with other countries, it will be easier to export goods to these countries.”

Hong Kong can benefit because of its position as a financial centre and being one of the important centres for services

Sufian Jusoh, fellow, World Trade Institute

Hui, who is also chairman of Hong Kong’s Small and Medium Enterprises Committee, added that even though Hong Kong was not yet an RCEP member, the city could still take advantage of potential tax benefits and smoother customs arrangements emanating from the trade pact.

“With the US and Europe markets not doing very well, we do need to explore other territories in order to retain our business,” he said.

Terence Chong Tai-leung, an economist from Chinese University, agreed the RCEP offered greater access to Asean markets, but had doubts over what advantages it could offer specifically to Hong Kong, even as a member.

“The RCEP will be more beneficial to export-reliant countries, whereas Hong Kong is more on re-exports, and would only benefit with our re-exports to China, which then deals with Asean, a fast-growing bloc that will be most important in the coming 10 to 20 years,” said Chong.

Asean, RCEP trade partners unlikely beneficiaries from US-China trade war: economist

In 2019, the value of goods re-exported to and from the mainland was HK$3.5 trillion, accounting for roughly 40 per cent of total trade merchandise that year.

The Post has reached out to the Hong Kong government for comment.

US President Donald Trump launched this summer a barrage of sanctions against Chinese and Hong Kong officials and stopped recognising the financial hub as a customs territory separate from mainland China in response to a perceived erosion of freedoms, including from the national security law.

The city was also forced to abide by Washington’s new rules to label its exports as “Made in China”, even though Hong Kong is regarded as a separate trade entity.

The Hong Kong government has since filed to open proceedings under the World Trade Organization’s dispute procedures.

Sufian Jusoh, World Trade Institute fellow, agreed that Hong Kong could request to join the RCEP deal to consolidate the free-trade agreement it has with Asean that took effect last year.

“Hong Kong can benefit because of its position as a financial centre and being one of the important centres for services. With RCEP there will be a higher level of liberalisation of services and investment,” he said.

Julien Chaisse, a trade law professor at City University, also agreed that Hong Kong would “indirectly benefit” from the new trade deal.

He said mid-sized countries most active in global value chains such as Malaysia, Thailand, Vietnam, Korea and Brunei were poised to enjoy the largest gains, while economies already among the world‘s most open, including Singapore and New Zealand, would see the smallest return.

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