HONG KONG—GATEWAY TO CHINA STILL?
by Ka Yue
Hong Kong Businessman
For almost sixty years, Hong Kong because of its unique location politically( British colony) and physically( situated at the mouth of Pearl River), has became the gateway of the western world to China since the communist party took over. Hong Kong had transformed itself from a small fishing village to a trading post, to a light industrial city then to world class financial center.
During this period, the western world saw China through Hong Kong and vice versa. As China started to open up to the world, there were more and more cities in China( such as Shanghai, Beijing, Guangdong) which beame international. Hong Kong started to lose its edge as the gateway to China.
HONG KONG AS A COLONY
Ever since Hong Kong became a colony of Britain, it acted as a trading port between the western world and China. It was not very important at the beginning–there was always Shanghai, the largest city for trading. Not until the Second World War. At that time, Hong Kong was a refuge for the war victims, and war supplies going into China.
Since then, Hong Kong has been a supply line of the western world to China, especially during the beginning of the communist rule.
During the beginning of the communist regime, China was closed to the rest of the world except Russia. After the war, China needed a lot of materials; especially basic necessities. A lot of these materials had gone through Hong Kong to China, mostly to the southern provinces.
At this time, a lot of refugees from China had settled in Hong Kong and so are a lot of the businessmen had escape from the communist regime with their money. So there were a lot of cheap labor from the refugees and there were capital from the businessmen. Then Hong Kong started to become a light industrial city. More materials then went into China through Hong Kong, especially the luxurious goods and late technologies.
To buy all these materials, China need of lot of money but the problems is RMB is a soft currency; it could not be traded in the world market. This was where Hong Kong played a very important role as a financial center for supplying China with hard currencies. With large amount of import and export businesses, that originated from or through Hong Kong drew a lot of banks from different countries to open offices here. A snow ball effect occurred,there were more and more trades ( legal or illegal) was done in Hong Kong, and Hong Kong as the world class financial started to grow. These banks supplied the needed money for China legally or underground.
THE EFFECT OF BRITAIN
The British government had installed two very good systems for Hong Kong, the legal system and tax system; if not anything else. Hong Kong had gained a good reputation from these two system as a free trade city(low tax rate and a legal system to protect the trades). These attracted a lot of foreign companies from oversea to set up offices in Hong Kong, also more and more companies started to list and trade publicly in Hong Kong Stock exchange. After China opened up its market, the companies in China began to list in Hong Kong and provide China with more money(some of the companies had a very strong government background).
At this time any company that wanted to have a share of the Chinese market started to open up head quarters in Hong Kong, as a spring board into China. Hong Kong grew tremendously in its financial sector during this period(mid 70s to mid 90Ã¢â‚¬â„¢s).
Despite its small location, the stock capitalization of Hong Kong ranked the 9th in the world; that is because it had enabled the world to trade with China. China also had the benefit of the open stock trading of Hong Kong.
Besides obtaininfg itÃ¢â‚¬â„¢s financial need; China also let its cities open up slowly and learn from the experience of Hong KongÃ¢â‚¬â„¢s stock market.(ShenZhen is a very good example)
In 1979 China started to open up its market, more and more cities in China were looking for foreign investment. In order to benefit from low land cost and cheap labor, the manufacturing sector of Hong Kong began to move to China to set up factories; but the offices would stayed in Hong Kong to take advantage the tax and legal system.
This situation lasted for a while, but as the cost for business became higher and higher in Hong Kong; and the environment for business became more mature day by day, more and more companies bypassed Hong Kong and set up shops directly inside China.
HONG KONG STARTS TO LOSE
Hong Kong is losing its edge as the gateway to China, especially after 1997. If it can stop digging itself into a second rate city of China, it can still hold some advantages that China will value.