Hong Kong: Super-connector in China’s ‘One Belt One Road’ Initiative

China’s ‘One Belt One Road’ initiative has been raised for more than two years. How to unleash the potential of Hong Kong in this ambitious economic initiative? What are the business opportunities it can offer for Hong Kong?

By Fang Ying, Senior Writer, China Business Knowledge @ CUHK

“Hong Kong will be the best placed Chinese city to contribute to the ‘One Belt One Road’ initiative if the city can leverage its traditional strength of a financial hub and unleash its potential of a ‘super-connector’ between the Mainland China and the rest of the world.”

This is the key message from the roundtable forum jointly organized by China Daily and the Hong Kong General Chamber of Commerce on 29 October, 2015. Under the theme of “Hong Kong Unleashing the Potential of ‘Belt and Road’ Initiative”, the roundtable forum invited a panel of top-level speakers to offer their insights and opinions.

Bridging China and the World

In his keynote speech, Leung Chun-ying, the Chief Executive of Hong Kong SAR Government, said: “Our success has been powered by the twin engines of China and the world – By our ‘One Country, Two Systems’ arrangement and the deepening economic integration it has offered us, and by our strong connections with the rest of the world.”

Leung believes that Hong Kong will be the best placed Chinese city to contribute to the ‘One Belt One Road’ initiative if the city can take advantage of its strength and find its competitive edges. He said that as a world-class business center, Hong Kong has a mature market environment, a pool of talents who can offer expertise in finance, law, engineering management and many other professional areas, and superb business connectivity with the world. With these strengths, Hong Kong can help build a bridge between the Mainland China and the rest of the world to enable smooth and efficient flow of goods and services and of capital, playing a significant role as China’s ‘super-connector’ in the ‘One Belt One Road’ initiative.

“For the country, the ‘One Belt One Road’ Initiative is an unprecedented strategic vision while the promise for Hong Kong is equally outsized. It will help power the future for the Chinese mainland, for over 60 economies along the link and for Hong Kong. All of us can take part in this once-in-a-lifetime journey if we seize the opportunity today,” said Leung.

Proposed by President Xi Jinping in 2013 during his visit to Kazakhstan, the ‘One Belt One Road’ initiative aims to boost trade ties and facilitate economic cooperation involving at least 65 countries and more than 4 billion people, which is about 61 percent of the world population.

With China as the starting point, ‘One Belt One Road’ comprises the Silk Road Economic Belt and the 21st Century Maritime Silk Road. The former aims to establish a cohesive economic belt across Central Asia, West Asia, the Middle East and Europe with high-speed railway works; the latter aims to link Southeast Asia, the Indian Ocean and Africa by various port works. Both infrastructure projects will enhance trade, cultural exchanges and economic development for countries along the belt and the ‘sea road’.

According to China Daily, since the launch of the initiatives, over US$250 billion worth of projects, ranging railways to power plants have already been contracted.

“Hong Kong is well situated to play a role in fundraising – from bank loans or syndicate loans to issuance of bonds, to equity raising. For many years, Hong Kong has been one of the largest capital formation centers in the world.” – Chow Chung-kong, Hong Kong Exchanges and Clearing Ltd

Bridging the Funding Gap

One of the panelists at the forum was Chow Chung-kong, Chairman of Hong Kong Exchanges and Clearing Ltd. An alumnus of CUHK Business School, Chow completed his MBA Program in 1981. He offered his insights on the ‘One Belt One Road’ initiative from the financial perspective.

Concurring with Leung’s view, Mr. Chow said that Hong Kong, as one of the most important financial services centers in the region, was in an excellent position to meet funding requirements related to the ‘One Belt One Road’ initiative.

“Many projects involved in the ‘One Belt One Road’ initiative would need renminbi funding. We have the biggest offshore renminbi liquidity pool in the world,” said Chow. “Hong Kong is well situated to play a role in fundraising – from bank loans or syndicate loans to issuance of bonds, to equity raising. For many years, Hong Kong has been one of the largest capital formation centers in the world.”

Currently, there are many financial institutions set up for the ‘One Belt One Road’ initiative, such as the Asian Infrastructure Investment Bank, the Silk Road Fund and the New Development Bank. So how can Hong Kong compete among these competitors?

Chow said that although various financial institutions have been set up for the initiative, these organizations alone are not adequate to satisfy the funding needs of ‘One Belt One Road ‘.

“To make the ‘One Belt One Road’ initiative reach its full potential, the commercial sector must get involved. Unless the smart money is invested in sensible and profitable projects, the initiative will not achieve its full potential. I think that’s where Hong Kong can play an important role,” he said.

Leung expressed the same view in a commentary for China Daily this October. In the article, he said that “Hong Kong is a premier fund-raising hub and can offer multiple channels of financing, bank loans and venture capital, etc. for companies and businesses. As the world’s largest offshore renminbi center, and the first place outside the mainland to develop a renminbi bond market, Hong Kong is also the place to find liquidity in renminbi.”

As China’s economy becomes increasingly integrated with the rest of the world, renminbi has become more widely used in trade and investment activities. Foreign direct investment into mainland China, and outward direct investment from Mainland China to the rest of the word, can also be carried out in renminbi. According to the Hong Kong Monetary Authority, Hong Kong was the first offshore market to launch the renminbi business back in 2004 and now it has become the largest renminbi liquidity pool outside China. At the end of 2014, the renminbi customer deposits and certificates of deposit issued by banks in Hong Kong together amounted to over 1.1 trillion yuan and the pool is steadily growing.

In addition, Chow pointed out that being a convenient and trusted location by all concerned parties in the region, Hong Kong has its special advantage to play a role in international financial transactions related to the ‘One Belt One Road’ initiative. “Mainland enterprises trust us since we are part of China, and international enterprises trust us because of our rule of law tradition and transparent world-class regulatory practices,” he said.

However, while opportunities are abundant, Chow emphasized that they are not going to serve Hong Kong on a silver plate. “We have to work hard for the opportunities; otherwise, we cannot fully explore them,” he said.

“I agree with Mr. Leung that our biggest advantage is the fact that we are part of China, under the ‘One Country, Two Systems’ structure, and that is where we will stand to compete and win.”

“The ‘One Belt One Road’ initiative is a real driver of economic growth. More than just the redistribution of wealth, it’s the engine to create new economic dynamics. Hong Kong can facilitate such economic activities and benefit from them,” Chow said.