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2021 February
CGCC Forum: Embracing New Paradigms for New Opportunities

Various parts of the world experienced unprecedented challenges last year. Although we are now in the new year, the Hong Kong economy will still be subject to uncertainties such as the COVID-19 pandemic and China-US relations. At the same time, the new development paradigm of “dual circulation” introduced in the “14th Five-Year” Plan will bring new opportunities for Hong Kong. To mark the start of the new year, the CGCC Forum was online and government officials and expert scholars were invited to share their insights, explore global challenges and opportunities, and discuss how to open up more space for development.
 

 

Paul Chan: Rays of hope emerging against challenges

Paul Chan, Financial Secretary, noted that the world experienced a challenging 2020, with pandemic control measures affecting the normal economic functions of various places. However, due to its remarkable achievements in response to the pandemic, the Mainland became the only major economy to record positive growth. According to estimates, Hong Kong’s economy will experience its worst recession in history in 2020, with a sharp deterioration in the labour market. Opportunities for an economic turnaround are emerging in the new year, and the Mainland’s rapid economic rebound is a strong backing for Hong Kong’s recovery. The HKSAR Government will ease the downward pressure on the economy through relief measures and proactive fiscal policies.

 

He noted that the pandemic has furthered the digital development of business operations and personal consumption patterns. The Government will actively enhance Hong Kong’s strengths in innovation and technology (I&T) development, deepen cooperation with Shenzhen on the Lok Ma Chau Loop project, and allocate more resources for nurturing of talents and scientific research. In addition, as the pandemic has prompted ecological changes in industry and supply chains, the HKSAR Government is actively expanding Hong Kong’s free trade agreement network, including striving to join the first batch of economies after the RCEP agreement takes effect. With the pandemic driving I&T and digital transformation, Hong Kong should intensify cooperation with Shenzhen to develop the Guangdong-Hong Kong-Macao Greater Bay Area (Greater Bay Area) into an international I&T hub.

 

During the Q&A session, Chan mentioned that this year’s fiscal budget will concentrate resources on providing targeted support for severely affected industries. As the country pushes forward “dual circulation”, through the Greater Bay Area, Hong Kong can serve as an entry point into internal circulation and act as an “intermediary” and “facilitator” in the development of external circulation.

 

 

Qian Jun: Mainland financial markets developing outstandingly

Qian Jun, Executive Dean of the Fanhai International School of Finance at Fudan University, believes that investing in China government bonds (CGBs) is more appealing than in European and US government bonds as the yields on CGBs are as high as 3% while those on European and US government bonds are only 0.5% or even negative. Moreover, the RMB is steadily appreciating and as a percentage of GDP, CGBs are lower than European and US government bonds.

 

He added that the Mainland’s entry into the RCEP and the EU-China Comprehensive Agreement on Investment last year has enabled Mainland businesses to benefit from the lower tariffs for RCEP members and removed the policy uncertainties regarding investment in European countries, which is good news for investors and Hong Kong should benefit from it. In addition, with the introduction of digital RMB in the Mainland, Hong Kong can play its role as an international financial centre to support the digital currency’s long-term development.

 

Qian also mentioned that the Mainland’s stock market is less volatile than the US, while its daily consumer sector performs better. In contrast, the US stock market fluctuated sharply last year. Overall, except for the outstanding performance of the technology sector, US stock performance was just average. Amid the COVID-19 pandemic, some old US industries have been heavily affected, but new industries have also emerged. Qian made special mention of Shanghai’s STAR Market board, whose listing conditions emphasize the sustainability of operation and give businesses that are not yet profitable the opportunity to be listed on the board.

 

 

Wang Tao: COVID-19 pandemic has a profound impact on the global economy

Wang Tao, Chief China Economist and Head of Asia Economic Research at UBS AG, expects major shifts in global consumption and production after the pandemic, with digitalization and the Internet economy developing rapidly, and traditional consumption and production shifting increasingly online.

 

She noted that given the rollout of COVID-19 vaccines, the major economies are poised for a recovery this year, and the global economy is likely to rebound from a contraction of 3.5% last year to 6.3%. Meanwhile, the Mainland’s economy could grow by more than 8%. The recovery of the global economy will also boost China’s export growth.

 

Wang expects China’s various support policies to ease gradually this year. Traditional infrastructure and real estate investments will decelerate, but IT-related “new infrastructure” investments will continue to increase, effectively offsetting the deceleration of the former. In her view, China’s recent introduction of its “dual circulation strategy is very timely and will more effectively harness the huge potential of the Mainland market.

 

As for Hong Kong, she believes that its status as an international financial centre is still firmly cemented and will keep attracting capital inflows this year. She believes that Hong Kong should capture the development opportunities arising from the “dual circulation” strategy to continue consolidating its role as a window for foreign capital to enter the Mainland market, while actively serving as a platform for Mainland capital to enter the Asia-Pacific region.

 

 

Preview of Challenges and Opportunities for Industry Development

The Forum featured a dialogue session, where Pang Yiu-kai, Chairman of the Hong Kong Tourism Board (HKTB); Lin Sun-mo, Chairman of the Hong Kong Productivity Council (HKPC); Annie Tse Yau, Chairman of the Hong Kong Retail Management Association (HKRMA) and Michelle Li, CEO of AMTD Digital attended as guests to jointly discuss the difficulties faced by different industries in Hong Kong in the current economic and social situation and how to open up more market development space.

 

Pang Yiu-kai: Ensure environmental safety and improve tourism quality

Pang said that the pandemic has plunged the tourism sector into a deep freeze. Nevertheless, the HKTB and the sector have been actively making preparation during the pandemic to continue maintaining Kong’s exposure and appeal. Faced with intense competition from other cities in the region, the HKTB has continued to launch various online and offline promotional activities during the pandemic, and worked with the sector and community partners to boost the appeal of tourism in Hong Kong.

 

Pang expects a huge demand for tourism post pandemic. He pointed out that the prerequisite for enticing tourists back to Hong Kong by then is to provide a safe environment; in the future, tourism-related industries must improve their pandemic prevention and hygiene standards. The HKTB also works with the Hong Kong Quality Assurance Agency (HKQAA) to provide standards-compliant industries with certification to boost the confidence of tourists and consumers.

 

In the long run, the sector must attract high-end tourists, develop “Business & Leisure” tourism products, and strengthen cooperation with the Greater Bay Area cities to improve Hong Kong’s tourism competitiveness. He hopes that all the people of Hong Kong will show a welcoming attitude by then, so that visitors will feel at home.

 

Lin Sun-mo: “Made in Hong Kong” brand is a guarantee of confidence

In Lin’s view, the pandemic further shows that Hong Kong businesses urgently need to transform, and enabling the intelligence of industries will act as an engine of transformation. He added that the “Made in Hong Kong” brand is a guarantee of confidence. Moreover, as Hong Kong has an edge over the Mainland in importing many types of raw materials, if high value-added and high-tech products are produced in Hong Kong, coupled with intelligent transformation, it is actually a big opportunity.

 

Citing an example, Lin said that Po Sum On, a well-established brand in Hong Kong, has automated its medicine production lines in recent years through collaboration with the HKPC, which has not only improved productivity, but also avoided laying off employees as they are assigned to other new jobs. This is a typical win-win situation. Lin noted that the HKSAR Government currently has as many as 40 to 50 different funds, offering very abundant funding support to businesses.

 

Annie Tse Yau: Tap into online retailing for further development space

Tse Yau noted that Hong Kong’s retail sector has been going through the most difficult period in its history in the past year and a half. High rents remain the biggest burden for the retail sector.

 

Tse Yau said that it is still uncertain when the pandemic will end and when customs clearance can resume. She expects the retail market to remain sluggish in the first half of this year. In particular, the situation will remain grave for tourism-related retail categories.

 

She said that businesses have not been willing to innovate and develop online shopping for a long time in the past. However, the current challenging business environment has prompted the retail sector to seek innovation and change. She hopes that the sector can turn crisis into opportunity, proactively expanding online and offline cross-border omni-channel sales to cater to the increasingly popular online consumption habits as well as shift the spending by tourists on free-and-easy trips to Hong Kong to online shopping, thereby opening up more development space for the retail sector.

 

Michelle Li: Virtual banking offers a whole new experience

Li noted that Hong Kong’s issuance of virtual banking licenses in 2019 is a milestone and demonstrates its desire to be not only an international financial centre, but also an international financial technology centre. A year after that, many virtual banks are already in operation. She said that it is very simple and quick to open a virtual bank account, taking as little as five minutes. Moreover, there is neither physical outlet nor cumbersome manual process, so the resultant cost savings can be passed on to consumers and customers.

 

Li added that many people want better services at lower costs and virtual banks can help overcome the shortcomings of the industry in this regard. Furthermore, virtual banks are not positioned to serve large businesses, but mainly to take in customers that traditional banks cannot cover, so they do not compete too much with traditional banks.

 

Li said that virtual banks in Hong Kong will launch more innovative services this year, including online payment and online insurance, and provide customers with highly personalized and automated services through big data analytics. However, it is currently difficult for the industry to obtain sufficient customer data. Therefore, she hopes that the HKSAR government can provide appropriate support.