“In financial markets – no matter what happens, if the music is on, you have to dance.” As said by Mr. K.C. Kwok during a presentation last November. Mr. Kwok, an Honorary Senior Research Fellow in the School of Economics & Finance at University of Hong Kong and former HKSAR Government Economist, highlighted the intricacies of the ever-more dynamic relationship between China and Hong Kong. In this A-Salon talk, various key issues were raised that are necessary to understand the development of this relationship, complicated by economic and political factors.

Hong Kong has served as an indispensable economic bridge between China and rest of the world. It is the key hub for investment – in and out of China – and has provided Chinese companies with access to capital markets for bond and loan financing. And, the Chinese government has also made the city a testing ground for a range of financial reforms over the past 5 years. But the interest is mutual. Foreign companies use Hong Kong as their foothold to invest in China because it offers what many cities in Mainland lack: a stable investment environment protected by fair and transparent courts that enforce the long-established rule of law. For example, many American and European businesses take issue with the fact that their Chinese partners have enormous (bargaining) power due to the governmental support they receive from their country.

As China continues to boom, the role of Hong Kong will also change and become more relevant. Given that China’s domestic economy is closely intertwined with global markets, fluctuations, positive or negative, will evidently affect Hong Kong. The city remains a preferred base for international companies looking to set up or manage their regional operations in Asia. The same counts for the Chinese counterparts, who aim to diversify their markets and increase trade connections with other parts of the world. An international branch in Hong Kong is thus desirable, and perhaps a first safe step towards building this bridge. It equally helps Chinese individuals to use Hong Kong as a springboard to launch investments abroad.

Amid the rapid transitions in economic and bilateral balances between Hong Kong and Mainland China, local city authorities are trying to ensure that research and development in technological sectors do not lag behind. While the drastic growth in globalization has evolved Hong Kong into one of the major finance and investment hubs of the world, it has sharp-feeling downsides. Fierce competition on the job or housing market, a well-known discussion topic, is just one example. But at the last, China and it’s companies understand the fact very well that they themselves, are the biggest beneficiary of globalization.

Written by Swapnil Joshi
Edited by Rustam Khan