Dr Charles YEUNG (Chairman of the 48th, 49th terms of office) August 2016
Hong Kong can perform its functions as an international financial centre and the largest offshore RMB business hub to provide comprehensive financial support for Sino-British economic and trade cooperation.
Recently, the UK’s Brexit referendum has triggered turmoil across world markets. This, together with the external economic uncertainty and the fluctuations of interest and exchange rates, had an impact on Hong Kong’s financial markets to a certain extent. Although Brexit’s long-term impact on Hong Kong’s real economy remains to be seen, it is necessary for the business community to make early preparations and leverage Hong Kong’s unique strengths to get ready for the changes that may occur in the economic and business environments.
Limited impact on Hong Kong’s real economy
Many people believe that Brexit’s impact on Hong Kong is mainly on the financial sector. After the referendum outcome was announced, the sterling pound fell to a record low in years and asset prices were under pressure. Hong Kong’s stock and foreign exchange markets also plunged. In particular, the share prices of some listed companies having close economic ties with the UK saw double-digit percentage declines. While the financial markets have become stable for the time being after a wave of volatility, the global markets are expected to keep fluctuating under the influence of various uncertainties since the process for the UK’s withdrawal from the EU and the ensuing arrangements will take quite a long time, and Hong Kong is unlikely to be spared. Therefore the business community should stay vigilant.
In contrast, Hong Kong’s exports of merchandise trade to the UK account for only about 1.5% of total exports, and its investments in the UK account for only about 2% of overall foreign direct investment. It is expected that even if Brexit has an impact on direct trade and investment income between Hong Kong and the UK, the impact on Hong Kong’s industries and real economy is unlikely to be significant.
Performing “super connector” functions
It is difficult to have an answer in the near future as to how Brexit will eventually change the long-term global economic landscape and Hong Kong’s business environment. Some members of the public commented that Brexit may lead to the UK strengthening economic ties with Asia and particularly seeking more opportunities for trade and investment exchanges with China. During President Xi Jinping’s visit to the UK last year, both sides mentioned the alignment of the Belt and Road initiative with the economic revitalisation plan for the north of England, aiming at speeding up efforts to attract investments from China to reach a win-win situation.
Indeed, the UK has always been one of the major European economies, and London’s status as an international financial centre has a decisive influence on global economic and financial operations. It is widely expected that Brexit will not all of a sudden weaken the UK’s strength. Instead, it could provide opportunities for further deepening of cooperation between the UK and China, the two major economies, in the areas of finance, merchandise and service trade, tourism, and mutual investment. Among these, Mainland enterprises can actively participate in investments under the UK’s plan to promote economic development in the north of England, while the UK’s experience and strengths in professional services can provide important support for the Belt and Road initiative.
As an important platform for Mainland enterprises to go global, together with its ongoing close ties with the UK due to various historical reasons, Hong Kong can serve as a pivotal intermediary platform for Sino-British economic and trade exchanges. For example, Hong Kong can perform its functions as an international financial centre and the largest offshore RMB business hub to provide comprehensive financial support for Sino-British economic and trade cooperation. At the same time, Hong Kong’s high degree of alignment with international practices in terms of legal, accounting as well as other professional services will help its various professional service industries to play to their strengths and help explore new business opportunities in the process of the UK strengthening cooperation with the Mainland and the rest of Asia.
Furthermore, considering that the Mainland and the EU have been working towards a China-EU free trade zone, issues such as whether Brexit will accelerate the pace of China-EU economic and trade ties or whether this will give impetus to China and the UK to explore a separate free trade agreement have aroused much attention and discussion. As part of China, Hong Kong can leverage its unique strengths under the “One Country, Two Systems” framework to fully perform its functional role as a “super connector” when the country actively deepens trade and economic cooperation with the rest of the world.
In conclusion, Brexit’s impact remains uncertain. Coupled with the increase in downward pressure on the global economy, this will undoubtedly add uncertainty to Hong Kong’s economic outlook and business environment. Nonetheless, challenges and opportunities coexist. As long as we in the business community can plan ahead and pay close attention to global market changes while adjusting our business strategies in a timely manner to align with the country’s Belt and Road general direction of economic development, we will be able to find room for development amid the challenges.