InvestHK (Invest Hong Kong) is the Hong Kong Special Administrative Region (HKSAR) Government Department responsible for Foreign Direct Investment. InvestHK’s vision is to strengthen Hong Kong’s status as the leading international business location in Asia. Its mission is to attract and retain foreign direct investment which is of strategic importance to the economic development of Hong Kong. 

“We are delighted to announce our partnership with CBBC for China Consumer 2024. It’s a privilege to partner with such an insightful event, and we look forward to contributing to the valuable discussions and networking opportunities it offers,” says Daisy Ip, Head of Investment Promotion, InvestHK. “We are excited to contribute to the Hong Kong panel discussion at China Consumer 2024. Our focus will be on the growing business opportunities in Hong Kong and how Hong Kong serves as a conduit for UK businesses to access the broader China markets.”

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China not only remains the most attractive consumer market for exports growth, but it is also a future lab for all UK brands aspiring to innovate in consumer marketing, AI integration and customer engagement. 

Get up to date on the latest trends in China’s consumer market – from sustainability to creating a China strategy to navigating the country’s consumer sub-cultures and tribes – and hear from leading speakers from WPIC, John Lewis, InvestHK, Douyin & Miller Harris, amongst others, at CBBC’s flagship annual consumer conference. 

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The post InvestHK joins China Consumer 2024 as Silver Sponsor appeared first on Focus - China Britain Business Council.

The Greater Bay Area (GBA), which covers nine municipalities of Guangdong Province (Guangzhou, Shenzhen, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen and Zhaoqing) around the Pearl River Delta, plus the two Special Administrative Zones (SAR) of Hong Kong and Macau, has long been a trading hub that connects China to the rest of the world.

For centuries, the trading posts at Lumen and Guangzhou welcomed traders from Europe, the Middle East, Africa, India and South East Asia. Even during the relatively isolationist Mao era, the Canton Fair (now known as the China Import and Export Fair) continued to host foreign merchants twice a year. In 1953, the famous Icebreaker Mission, led by the British economist Joan Robinson, travelled to Guangzhou to sign a business arrangement which ended the boycott imposed by the UN in response to the Korean War.

The Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area, published on 18 February 2019, set out a bold vision for a region that has long been one of China’s most dynamic and highest in potential. The plan proposed a far-reaching overhaul of the Pearl River Delta’s infrastructure and administrative set-up to expand on existing strengths and pave the way for further economic expansion.

The major cities of the Greater Bay Area

The region has developed rapidly since the release of the plan, despite the impacts of the Covid-19 pandemic, largely thanks to five main geographical and structural advantages:

1. The GBA hosts three of the world’s 10 busiest container ports — Shenzhen, Guangzhou and Hong Kong  (according to the World Shipping Council) — and has direct access to the South China Sea, which carries an estimated one-third of all global shipping.
2. Together with a sprawling network of waterways, the region has over 11,200km of express roads and a railway network the size of a small country, providing convenient and easy access to China’s vast consumer market.
3. The GBA is a key manufacturing hub, accounting for 35% of exports from mainland China, Hong Kong and Macau. Advanced manufacturing, in particular, is becoming a key area of investment, with the region seeing major growth in new energy industries such as lithium batteries and photovoltaics.
4. The region hosts some of the most innovative and technologically advanced companies on earth. In 2017, nearly 14% of all Chinese patents were filed by companies based in the GBA. Shenzhen alone accounted for over 40% of international patent applications from China.
5. Businesses in the delta can access three of the world’s leading financial centres. Aside from Hong Kong, which occupies fourth place on the Global Financial Centre Index, Shenzhen and Guangzhou, which come in at 9th and 25th respectively, represent two new emerging finance hubs.

The British business community is watching the development of the Greater Bay Area with great interest. For UK companies consider it to be an important driver for their Greater China operations, whether in financial services, technology and innovation, or other sectors.
Sir Sherard Cowper-Coles, Chair, China-Britain Business Council (CBBC)

Key areas of opportunity in the Greater Bay Area

Infrastructure 
There are few regions as well-networked as the GBA. Large-scale infrastructure projects, including the Hong Kong-Zhuhai-Macau Bridge, completed in 2018, and the express rail network that links Hong Kong to Shenzhen and Guangzhou and onwards to China’s vast high-speed rail network, have made it quick and easy to travel around the region, achieving a level of convenience that will only expand now the restrictions of the Covid-19 pandemic have been lifted. Green infrastructure – including low carbon transportation, green buildings, water and waste management, and more – is also a major part of the region’s current infrastructure boom, with green infrastructure investment accounting for RMB1.9 trillion of the total RMB 5 trillion earmarked for major infrastructure projects in Guangdong Province’s 14th Five-Year-Plan (FYP).

Advanced and high-tech manufacturing
According to the Department of Industry and Information Technology of Guangdong Province, in the first six months of 2022, advanced manufacturing and high-tech manufacturing accounted for 55.9% and 33.1%, respectively, of the industrial added value of the GBA. Key industries include electronic communication devices, automobiles, and chemical products. The growth of this sector in the GBA has been and will continue to be made possible by the provision of research funds, the construction of facilities such as high-tech industrial parks and national supercomputer centres, and the recruitment of human resources from around the world (for example, the Shenzhen Government has offered subsidies for undergraduates who move to Shenzhen). The establishment of cross-border “cooperation zones”, such as the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone, has also played a key role.

In Hong Kong itself, the government has made unprecedented strides to promote information and technology development by investing more than HK$130 billion from 2017 to 2021. StartmeupHK, an initiative by InvestHK, also supports startup ecosystem stakeholder companies to set up a presence in Hong Kong, and provides a one-stop service platform to enable them to grow from Hong Kong into the wider GBA.

Financial Services
A growing economy and an increasingly affluent population have made the GBA an attractive market for financial services products. Hong Kong is already an international finance centre, with financial services accounting for 23.3% of the SAR’s GBP in 2020, and the GBA has enabled much greater connectivity between Hong Kong and mainland China’s capital markets. On 10 September 2021, the Cross-boundary Wealth Management Connect was officially launched to enable residents in Hong Kong, Macao and nine cities in Guangdong Province to carry out cross-border investment in wealth management products distributed by banks in the area. According to a January 2023 report published by Bain, SMEs in the GBA also present a substantial opportunity for financial services providers, requiring support for expansion “including more convenient lending, professional wealth management services, flexible insurance policies, and comprehensive cash and liquidity management.”

Register now for the UK-GBA Conference in Shenzhen on Tuesday, 21 November

CBBC’s UK-GBA Conference, coinciding with the visit of CBBC’s Chair, Sir Sherard Cowper-Coles, and Chief Executive, Andrew Seaton, will provide a platform for senior-level representatives from our Members, partners, and other key stakeholders to discuss the latest developments and strategies for British companies in the GBA region. Also joining us will also be representatives from the British Government, Shenzhen and other GBA local Governments, as well as representatives from British and Chinese companies in Guangdong, Hongkong, Macau, and from other parts of China.

The post Opportunities for UK businesses in the Greater Bay Area in 2023 appeared first on Focus - China Britain Business Council.

With such uncertainty at present, perhaps it’s a good time to look back on the history of Hong Kong. There have certainly been books about the city’s history before – but long-time Hong Kong resident and prolific author Vaudine England’s Fortune’s Bazaar: The Making of Hong Kong (Corsair Books), is different.

Not the long list of former Governors and colonial officials, but a peoples’ history of Hong Kong, England engagingly rediscovers and accentuates the multi-cultural history of the former colony, including, of course, the Chinese and British, but also the major contributions of the Portuguese, French, Armenians, Russian émigrés, Parsis, Indians and a host of other nationalities that have added to the city’s once legendary vibrancy. It is also a history of the entrepreneurs, those looking to get on through hard work, the refugees, exiles, the women and the long-forgotten who trudged across the border to make their lives anew …

Your history of Hong Kong is quite radically different to most previous attempts, emphasising ordinary working and entrepreneurial people over a long list of governors and officials. How long had this way of thinking about Hong Kong been bubbling away in your head?

This subject has probably been in gestation for about four decades, but the actual hard work took place alongside other research projects over the past decade. It all goes back, weirdly, to my parents’ friendship with the late great social historian Revd Carl T. Smith when they lived in Hong Kong in the late 1970s and early 1980s. Smith had this amazing and ever-growing collection of index cards in a pre-computer age, referring to just about any individual that ever entered any kind of record in Hong Kong.

Carl scoured newspaper birth/death/marriage notices, but he also spent years in Land Registry offices, legal offices, and public records offices compiling his mini-biographies of the real Hong Kong people. My work owes a huge debt to his work. In fact, any Hong Kong historian owes a debt to Carl Smith. His focus was on finding out who were actually the people of Hong Kong, where did they come from, how did they live, who did they marry and build families and homes with. It marked the beginning of what you might call a Hong Kong school of history – one led not by the narratives of Britain or of China, but by Hong Kong itself.

Your analysis is also far more multicultural than previous histories. But do you think that that early diversity in the former colony you describe – Parsis, Armenians, Portuguese, English, Chinese – is still an integral part of 21st century Hong Kong, or has that aspect been lost?

Descendants of those early families of such diverse origins do still live in Hong Kong. In particular, there are significant communities of Nepalese families (dating back to their forebears’ roles in the Gurkha regiments), as well as Muslim and Hindu groups. They remain marginalised, and perhaps more so than ever before, as Hong Kong becomes more populated and governed by mainland Chinese interests.

Many of Hong Kong’s diverse peoples have left over recent decades, primarily in search of a place of safety regarding passports and education. Some of them first realised the need for this when British Nationality laws separated out British nationality (a passport) from citizenship (the right to live in Britain). Others have since discovered, as one Indian tycoon put it: we were second-class citizens under the British, and now we are third-class.

You also stress the internal diaspora nature of Hong Kong – that it has always been a magnet for Chinese talent and entrepreneurs from southern China. Is Hong Kong still such a magnet of attraction now mainland China’s economy has grown so significantly? Does Hong Kong still offer opportunities to mainland Chinese?

Current Hong Kong government policies, strongly led by Beijing, stress the need for Hong Kong to integrate with what they now call the Greater Bay Area. At the same time, the Hong Kong government is openly struggling to attract talent in a wide range of fields, from medicine to law to education and construction. Some rules are being loosened to enable mainland Chinese and other providers of such skills to enter the labour force in Hong Kong more easily.

It’s an open question whether Hong Kong represents the same route to a wider world once aspired to by young mainlanders, but it seems safe to assume that people will go where there are jobs and money to be made. Behind this policy puzzle is, of course, the fact that hundreds of thousands of educated and professional Hong Kong people have left in recent years in search of a better home abroad.

Fortune’s Bazaar also looks at the role of Cantonese in Hong Kong – as a language, culture, cuisine and beyond. But we’ve seen the marginalisation of some non-Mandarin language cultures, for instance, Shanghainese. What do you think is the medium- to long-term future for Cantonese now the drive towards Mandarin appears so strong and perhaps will become overwhelming?

I remember my profound shock back in the 1990s when one of my favourite editors – Fred Armentrout – suggested that Cantonese could become an endangered language. I did not believe him then, but as usual, he was prescient. I recall when the Cantonese in Guangzhou protested so vociferously when attempts were made to switch the main language of the evening television news to Mandarin/Putonghua. So far, Hong Kong still has two official languages — English and Chinese — but certainly, many more jobs now in Hong Kong required people to be at least bilingual — Putonghua and Cantonese — if not trilingual, with English. Having said that, it’s hard to imagine ever quelling the irrepressible wit and power of the Cantonese and their language.

Women, too, are shown to play a far more important role in Hong Kong’s development in your book. Hong Kong appears to be a place where historically, women could thrive to a greater extent than on the mainland. Is this still applicable in 2023?

Back in the mid-19th century, there were horrendous laws for women, such as the Contagious Diseases Ordinance, which required any woman servicing foreign men to undergo regular, invasive physical examinations, and then to be locked up until any infection had burned out. That was a serious downside to the colonial regime’s insistence on keeping their sailors clear of venereal disease.

On the other hand, some quirks of British laws, specifically those against slavery, enabled some working women from China to escape the clutches of the men (sometimes their relatives) who had trafficked them into Hong Kong. Moreover, the profession of brothel-keeper gave an early chance to some women to actually become CEOs – they had responsibilities under the law but also rights, which were unimaginable back across the border in China. Some progress has been made, of course, and the range of professions now open to women in Hong Kong has expanded exponentially. But they remain under-represented on company boards, subject to sexual harassment, not paid the same as male colleagues and much more.

Lastly, since the mid-19th century, Hong Kong has been, as you stress, first and foremost a port – a place for ideas and peoples to enter and leave as much as goods. Does Hong Kong still have a future as a port, as a “transmission belt” for ideas and innovation as much as for goods in container ships?

Does a port city need to be free to allow for the transmission of ideas as much as goods? Indeed, that is the question I plan to tackle next.

Some friends in Hong Kong now argue that while the freedom of speech, assembly and expression has gone, and the rule of law has been fundamentally altered, it’s no problem as the ships still sail and planes still fly, so never mind. Others say that Hong Kong’s struggle to staff its companies right now clearly shows that without the openness of exchange, a city starts to die; without any challenge, a government becomes inefficient; without alternative views and ways of operating, the innovation central to any port is quashed.

The question is whether such free ideas and peoples are integral to a port city or not — are they the cake or simply the icing on the cake? I plan to take a look at several different port cities to try to answer this question and I’ll let you know when I’m done!

The post Is Hong Kong still a thriving multicultural city? appeared first on Focus - China Britain Business Council.

Times have been tough for Chep Lap Kok – Hong Kong International Airport. Passenger numbers have slumped dramatically during Covid-19, the airport has been a virtual ghost town for over two years and the city’s role as a business centre, tourist destination and a major hub for the Asian region are all in question.

John D Wong’s ‘Hong Kong Takes Flight: Commercial Aviation and the Making of a Global Hub, 1930s-1998’ (Harvard University Asia Center) is ostensibly a work of history, taking in the early days of flight in the former colony, the incredible sensation of landing at the old Kai Tak Airport, the rise of Cathay Pacific and Dragon Airlines, and HKIA’s role in building Hong Kong as an East-West hub and gateway into China. But Wong, an Associate Professor at the University of Hong Kong, has thoughts about HKIA’s more recent history and potential future. Paul French checked in for an aisle seat and a chat with the academic and author.

One of the most immediately interesting arguments in your book is the notion of the long-term development of Hong Kong as an air traffic “hub”. I think many of us think of this strategy as much more recent, but you suggest Hong Kong really worked hard to avoid ending up a peripheral air base from the 1930s?

Commercial aviation promised to rewire global traffic flows in the first half of the 20th century. In the 1930s, the British Empire extended its aerial reach to its Hong Kong outpost through the expanding network of Imperial Airways (British Airways’ predecessor). At the same time, American and Chinese interests (Pan Am and its joint venture in Republican China) strove to assert their power by expanding their flight networks in Asia. On this budding route map, Hong Kong appeared as a puddle-jumping stop along the world’s burgeoning skyways.

Keenly aware of the disruptive potential of commercial aviation, both political powers and commercial enterprises attempted to shape the new industry to their advantage and mitigate the risk of seismic impact on the competitive landscape. Institutionally, key players in the logistics business that had dominated previous generations of transportation, particularly shipping, needed to safeguard their commercial interests by asserting their presence on this new technological platform. It should therefore come as no surprise that Swire and Jardine Matheson entered the fray immediately after World War Two.

In the decades that followed, with advances in aviation technology, airplanes were able to cover longer distances between stops. To maintain its place on the map, Hong Kong needed to reinforce constantly its strategic criticality, as well as its economic significance to generate the prerequisite traffic flow.

You mention that part of Hong Kong’s success in the 1930s was ‘not being part of China’. This advantage arguably extended through the Cold War and then also worked directly to Hong Kong’s advantage after China began market reforms. But now, as business hopefully begins to resume for the first time since 2019, Hong Kong is in a very different place politically and in terms of its relationship to Mainland China. Has that long-running advantage of being what you call ‘the in between place’ been lost?

Hong Kong’s British administrative control allowed for the confluence of a special brand of aviation traffic. Traffic carried by European airlines met connections from the Americas. As Cold War tension escalated, Hong Kong became an important Southeast Asian hub on one side of the bamboo curtain. Even after aviation traffic came to a grinding halt with the Communist takeover of the Mainland, political and commercial powers continued to harbour hopes of building Hong Kong into an aviation connection point for China.

The reopening of the Mainland in the 1970s and 1980s realised that promise for Hong Kong. In the period leading up to the handover, the various parties took pains to retain Hong Kong’s unique configuration and not to upset the city’s progress in this regard. As China’s economy took off, Hong Kong benefitted tremendously from its intensifying aerial ties with the Mainland. Even though the world is converging quickly on a shared technological platform, it is not difficult to point to differences in the ways Hong Kong and Mainland authorities regulate traffic in the skies. Compared with connection points in the Mainland, Hong Kong has retained its distinctive advantage and should have a role to play in funnelling traffic into and out of China.

Moving to the current period, even if all Covid restrictions are lifted tomorrow in Hong Kong and Mainland China, do you think HKIA will ever return to the position it held as a regional hub pre-Covid, or has too much ground now been permanently lost to hubs like Singapore and the Middle East?

Technological advances have facilitated flights that can now span halfway around the globe. Yet, it continues to make sense for the industry to aggregate traffic at specific connection points. Covid-19 has certainly wreaked havoc on the entire industry. As the pandemic threat subsides, not all regions have responded in the same manner. Singapore has indeed loosened its restrictions more readily, but many Asian hubs – Hong Kong, Japan and Taiwan – are gradually lifting travel restrictions as well. For Hong Kong, returning to normal air traffic patterns is essential not just for the airlines but also for their economies. Commercial aviation is both a facilitator and an indicator of economic activities. Traffic at HKIA will remain a reliable barometer for Hong Kong’s pivotal role in global trade and finance. Proximity to China should continue to be Hong Kong’s asset so long as we quickly restore traffic flows with the Americas, Europe and Australia. As we enter the recovery phase, Hong Kong needs to buttress its cruciality, differentiate itself from rival hubs, and play an active role in network development.

You note in your conclusion that businesses operate across political jurisdictions and need to engage in “political jockeying” to secure their fate. Do you think international airlines will view HKIA differently in the future, as a less, or perhaps more, important “port”?

I understand “geopolitical jockeying” as manoeuvres that aim to cultivate alliances with or sponsorship of governing regimes. Hong Kong is an international city, but our airlines need the city’s government to negotiate air routes and assign these routes to specific operators. Beyond the confines of this city, airlines need the approval of Mainland authorities to fly over the air space of the PRC. Just as most international airlines are “flag carriers” or enterprises regulated by their respective authorities, carriers flying into and out of HKIA will need to be mindful of political dynamics and developments in their commercial space.

Post-handover, Hong Kong registered spectacular growth in commercial aviation. From 1997 to the peak in 2018, the number of air passengers grew by almost 150%. With a threefold increase during the same period, air cargo growth was even more impressive. In 2019, Cathay Pacific was the world’s eighth-largest airline in terms of passenger traffic and the third-largest in international air cargo. This was possible through the delicate footwork of enterprising operators who structured mutually beneficial alliances.

What of the local airline industry, primarily Cathay Pacific? What will the long-term effect be on them post-Covid and with the new political situation in Hong Kong that may favour Chinese airlines?

This is not a new phenomenon. As the conclusion of Sino-British negotiations in 1984 sealed the fate of Hong Kong beyond 1997, Cathay Pacific fashioned for itself a local Hong Kong profile. To continue to dominate the airways over Hong Kong, Cathay Pacific embraced red capital from Mainland-controlled enterprises with direct connections to Beijing. Throughout this process, the carrier’s dominant shareholder, Swire, demonstrated considerable agility and resilience against a rapidly shifting geopolitical backdrop. The incremental infusion of Mainland Chinese investment in and influence over the Hong Kong carrier, calibrated to reflect a comfortable compromise, enabled a seamless transition over the handover, which entailed a change of sovereignty (and the attendant air service rights) overnight on 1 July 1997 – no mean feat in light of the delicate diplomatic sensitivity and vast financial interests involved. In a round of restructuring in 2006, Cathay Pacific took over its one-time local rival Dragonair and accepted 35% of Mainland holdings of its own shares split between Air China and CITIC. At the same time, Cathay Pacific expanded its stake in Air China to 17.3%, up from the 10% it had acquired in 2004.  Since then, Covid-19 has extinguished the Dragonair brand but this process of alliance building will continue.

Finally, at the end of your book you hint at a possible shift in regional air hub priorities post-Covid. With the promotion of the Greater Bay Area, could Zhuhai Airport take a lot of HKIA’s cargo business, with Guangzhou prioritised over Hong Kong? Could growth (or recovery) be more focused on Chinese cities, relegating Hong Kong to a very secondary place?

For all connection points, geopolitical issues and ecological shifts generate opportunities and present challenges. British control mapped Hong Kong onto the world while its proximity to Mainland China provided the persistent appeal of potential aerial connections. Political transformations in China and Cold War dynamics heightened Hong Kong’s regional ties, reorienting the city toward the regional network of Southeast Asia. Against the backdrop of privatisation and economic liberalisation, Hong Kong’s phenomenal economic success allowed it to break out of its regional configuration and extend its command over long-haul flight routes.

In the fluid space that underwent continuous transformation, Hong Kong made itself an anchor in the network of flows. In the post-handover period, the city has experienced equally transformative dynamics: the persistent expansion of the Chinese economy, its evolving relation with the PRC leadership, and a changing British and American posture toward Hong Kong and China, to name just a few.

Although the system has withstood bouts of political turbulence, which influenced industry development from time to time, commercial aviation in Hong Kong, along with its global partners, has proved defenceless in the face of the Covid-19 pandemic. The conclusion of the pandemic could witness the dissolution of Hong Kong’s regional and global ties or the revitalisation of Hong Kong’s status as a hub. Playing out in the skies over Hong Kong, the outcome pivots on the city’s ability to demonstrate yet again its nimble posture and delicate footwork in connecting global powers on the periphery.

The post Does Hong Kong have a future as an aviation hub? appeared first on Focus - China Britain Business Council.

The Hong Kong National Security Law (NSL) provoked considerable conversation when introduced by China’s National People’s Congress (NPC) in June 2020. Spooked by its seemingly sudden introduction, foreign business leaders took to the press, predicting that the new law could cause multinational companies to “vote with their feet” and leave the market. Portrayed by Chinese state media and Party-affiliated or Party-leaning analysts and think tanks as an essential piece of legislation that has “restored freedom from fear… following the social unrest in 2019,” how has international business responded to the NSL, one year later?

Background

The NSL was brought into law by decree of the Standing Committee of the NPC, bypassing the Hong Kong Legislative Council (LegCo) as a Mainland Chinese law applicable in Hong Kong under Annex III of the Hong Kong Basic Law (the de facto constitution of Hong Kong that was agreed to implement the Sino-British Joint Declaration in 1997).

That Hong Kong would introduce its own security law was one of the articles of the Basic Law. However, the LegCo never enforced Article 23 due to its unpopularity with the electorate. Fast forward to 2019, however, and the Chinese Government appeared to call time on the LegCo’s deliberations and took matters into its own hands.

Running to 66 articles, the NSL criminalises activities deemed to be associated with secession, succession, terrorism, and collusion; the maximum sentence for these crimes is life in prison. Applying to Hong Kong citizens, residents, non-permanent residents, and companies alike, businesses were quick to ask questions relating to how it would affect the business environment, considering that companies could face fines if convicted and foreign NGOs would be subject to stricter monitoring.

The business response

The NSL has changed how multinationals consider Hong Kong. That said, few have decided to air these concerns publicly, with the majority taking the approach of ensuring quietly that they are compliant rather than endorsing or criticising the NSL. While Hong Kong’s position has not changed on most ‘Ease of Doing Businesses’ indices, multinational companies acknowledge that it has affected the character of the market in a significant way – particularly with regard to employee safeguarding and the handling of data.

The criticism that the NSL makes the SAR just like any other Chinese city finds interesting application when reflecting on how multinational companies consider the market. After all, many multinationals maintain a presence in Hong Kong for the express purpose of doing business in Mainland China and have a long history of being compliant with similar legislation there – ergo, why should they then not accept the situation in Hong Kong? But that is a question outside the scope of this update.

Beyond the personnel and security ramifications of the NSL, three particularly interesting issues affecting business have emerged since its introduction.

The US Government ending Hong Kong’s ‘Special Status’ under US law

Two weeks after the NSL’s introduction, the Trump Administration announced that it was ending preferential economic treatment for Hong Kong through executive order. Speaking in the Rose Garden at the White House after the order’s signing, President Trump described the situation as, “No special privileges [for Hong Kong], no special economic treatment, and no export of sensitive technologies.”

The US and Hong Kong had maintained a special trading status under two agreements signed in the 1980s, that allowed Hong Kong to enjoy lower trade tariffs and a separate customs framework in its dealing with the US. But, it is worth noting that the executive order has no bearing on Hong Kong’s international position as a separate customs territory, because that is recognised by the World Trade Organization (WTO).

However, ending Hong Kong’s ‘Special Status’ under US law has potentially affected the city’s attractiveness as a re-export hub, which was one of the reasons it was so appealing to multinationals in the first place. This legislation primarily impacts companies that incorporate the US into their supply chains, which many UK multinationals do, including automobile manufacturers, semi-conductor & software design companies, and providers of medical devices. In the past, companies could use Hong Kong as a re-export hub, meaning that goods that go through Hong Kong to the US but have come from elsewhere – like China for instance – could avoid the tariffs that the Trump Administration placed on China.

Now that Hong Kong’s ‘Special Status’ is gone, the city is arguably no more attractive than any other port in China when considering supply chain management. The impact on Hong Kong has been substantial. Re-exports to the US previously constituted 7.9% of Hong Kong trade, and in 2019 were worth some $38 billion (£27.3 billion).

But by 2020, that number had fallen to 3.2% or $16 billion (£11.5 billion). To put that figure into context, the value of reexports from Hong Kong to other key markets, including Taiwan, Malaysia, and South Korea, increased by 18%, 2.8% and 9.1%, respectively over 2020, while re-exports to the Mainland (which introduced onerous quarantine policies on mariners, impacting exporters) decreased by 4.7%, still far short of the 58% decrease that US re-exports suffered.

The structural reasons for companies using Hong Kong as an Asia-Pacific hub remain in place – low tax rates, good geographic location, and convertibility of currency

Intensifying competition between Hong Kong and Singapore to attract multinationals

Since the introduction of the NSL, analysts have had their sights set on Singapore, anticipating an exodus of multinationals looking to sell across the Asia-Pacific and into China, but from somewhere deemed safer in terms of national security issues.

When surveyed in August 2020, 23% of US companies with offices in Hong Kong indicated that they were thinking of leaving the territory, according to the American Chamber of Commerce. Meanwhile, 13% had reportedly already taken steps to move out of the city. Furthermore, nine out of 10 respondents listed Singapore as their preferred destination for their relocation.

That said, the majority of companies appear to be staying put for now. After all, the structural reasons for companies using Hong Kong as an Asia-Pacific hub remain in place – low tax rates, good geographic location, and convertibility of currency, for example. Furthermore, the Chinese government’s interest in a Singapore model is well known and, one can assume, businesses anticipate that such a framework will quickly find application in Hong Kong. Singapore scores poorly on measures like freedom of the press and government accountability, but ranks in the top 5% on Rule of Law, according to the World Bank.

However, there is a risk Hong Kong’s ability to be perceived as a leading global centre for Rule of Law is being undermined by the NSL, as a steadily growing number of respected jurists elect to leave their positions on the Hong Kong bench and companies choose to pursue commercial arbitration in Singapore, London or Paris instead; Singapore received 479 new arbitration cases in 2019 to Hong Kong’s 308.

While companies are not announcing a departure, they are quietly buying up office space and apartments in Singapore for their Hong Kong-based staff. Despite travel restrictions and local restrictions on viewing properties, 260 units were sold to foreigners in Singapore in the first nine months of 2020 and 75% of such buyers were from Hong Kong or Mainland China, according to PropNex Realty, Singapore’s largest private real estate company; this is lower than the same period in 2019 (306 units) but nonetheless notable, given the expected impact of the pandemic.

Putting the NSL to one side, businesses and their employees are also reportedly beginning to shift towards Singapore because of the city’s relatively relaxed quarantine policies.

Data safeguarding

Multinationals that use Hong Kong as a hub to store their Asia-Pacific customer or R&D data are also beginning to re-evaluate their position in the territory. Some worry that enforcement of the NSL could lead to requests from Beijing for user data, making Hong Kong a less attractive place for tech companies resistant to China’s data review policies.

According to Article 43 of the NSL:

“When handling cases of crimes endangering national security, the Hong Kong Special Administrative Region government police department for the preservation of national security may employ the various measures that the extant laws of the Hong Kong Special Administrative Region allow the police and other law enforcement departments to take when investigating serious crimes, and may employ the following measures… (1) search premises, vehicles, boats, aircraft and other relevant places and electronic devices that may contain evidence of an offence… (4) Requiring persons who published information or the related service providers to remove information or provide assistance.”

As a result, the NSL is seen to override Hong Kong’s original legal system, potentially making it a less attractive destination for Asia-Pacific headquarters. If this is the case, it is a significant blow to MNCs, for Hong Kong has developed into the region’s hub for submarine internet cables and satellites because of business’ enthusiasm for the territory’s geographical location, meaning that it will be hard for companies to find similar services elsewhere.

While perhaps no longer suitable for a regional headquarters, companies that transfer data in and out of the Mainland still see an opportunity in the NSL as it pertains to data management: It could expedite the development of the GBA data regime. However, that role could be moving out of Hong Kong too, for Guangdong Province recently announced that it plans to build a common data platform for the GBA and a data trading market in Shenzhen to regulate data travelling between the Mainland, Macau and Hong Kong more thoroughly.

The CBBC view

The introduction of the NSL has the potential to change the role that Hong Kong is most suited to play in the Asia-Pacific operations of multinational companies. There are now attractive alternative markets (not least, Singapore) within which an Asia-Pacific hub could be established. Whether Hong Kong can retain its status as a gateway into Mainland China will probably depend on the role given to it within the GBA. Decades of interest from multinational companies looking to establish an APAC hub in Hong Kong has resulted in it having the optimal infrastructure from which to direct a large, regional business; the business environment is supportive too – e.g., Hong Kong has a lot to offer companies looking to re-direct goods and services into China through the CEPA Agreement. However, Beijing appears intent on bringing Hong Kong in line with its neighbouring GBA cities and ending its special treatment, meaning that it is not inconceivable that cities such as Guangdong, which has excellent shipping and data management capabilities in its own right, could – in the future – impede on the territory’s status as a gateway to China.

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The latter move has attracted most attention in the foreign media, owing to its unpredictable impact on the tense situation in Hong Kong and China’s relationship with the US. The former step, though, could have a far bigger impact on the business environment in China.

Civil Code

The Civil Code, which will take effect on 1 January 2021, is China’s first comprehensive legal framework for personal and private property rights, and includes laws regulating contracts and torts. The Chinese government has tried to establish a civil code since the 1950s: the current legislation, which was first introduced in 2014, is its fifth attempt.

During the six-year-long process, the code attracted widespread attention and lawmakers received over 900,000 public comments.

Although it is largely based on existing laws, eg the 1986 General Principles of Civil Law, and does not cover disputes between private parties and state entities, the new code removes inconsistencies and establishes a common legal terminology. It also clarifies contractual obligations and liabilities, especially for non-incorporated businesses, thus enhancing their legal protections.

While there might be few immediate consequences, the passing of the code itself marks a milestone in China’s legal development. It firmly entrenches individual and property rights in the country’s legal system.

Li Keqiang: Economic recovery is top priority

As in previous years, the Two Sessions ended with a press conference given by Chinese Premier Li Keqiang. Li defended the government’s decision not to set a fixed economic growth target for this year, adding that to do so would have been unrealistic given that the global economy is expected to shrink by 3 percent in 2019. Nonetheless, he was optimistic that China would achieve positive growth by the end of 2020.

Li announced that the government would inject a total of RMB 6 trillion (£680 billion) into the economy. One-third of that would be in the form of special bonds, whereas the rest would be achieved via tax cuts and other cost reductions. In total, these cuts should free up around 10 percent of Chinese aggregate annual income of RMB 40 trillion (£4.55 trillion).

The Premier repeated that this stimulus effort would be more targeted than the indiscriminate post-GFC stimulus effort which China launched in 2008, and which led to massive infrastructure spending, as well as multiple asset bubbles. Instead, most of the money will be used to safeguard jobs, and to broaden China’s social security net, he said.

Li made special mention of the 8.57 million graduates who are expected to enter China’s job market this year, as well as the country’s 200 million migrant workers. He also expects that the number of people relying on basic social transfer payments – currently estimated at around 60 million – will probably increase. Local governments should therefore use the additional funds to protect these vulnerable groups, he said.

Boost private businesses

The premier also stressed the importance of China’s private sector and the role of Chinese SMEs. According to Li, these firms provide 90 percent of total employment in China and should receive 70 percent of the government’s additional funding.

Pointing again to the difference with previous stimuli, Li said the extra money injected by the government would be aimed primarily at keeping these 120 million businesses afloat and at creating a fertile ground for new business ventures. The ultimate objective, Li said, is to create 20,000 newly registered companies per day this year.

On foreign trade and investment

Finally, Li highlighted the importance of foreign trade and investment. He stressed that the Chinese government remains committed to further opening up its economy and to collaborating with neighbours – South Korea and Japan in particular – to deepen economic integration. He indicated that China remains committed to its goal of concluding the Regional Comprehensive Economic Partnership this year, which would establish a free trade agreement between 15 regional countries, including Australia and New Zealand.

Li’s reassurance to foreign business follows an article published on Monday by the economic editor-in-chief of the People’s Daily, Lu Yanan, who emphasised the importance of FDI for the Chinese economy. Lu noted that big-ticket investments, such as energy projects and advanced manufacturing, are a significant part of China’s recovery strategy.

CBBC View

The outcome of this year’s Two Sessions highlights, above all, the seriousness of the economic impact of COVID-19. The government’s main concern clearly lies with protecting local businesses and shielding the Chinese economy and vulnerable economic groups from the looming global recession.

While there is disappointment among some China watchers about the lack of market-based reforms, the government’s cautious attitude is probably warranted, given the high degree of uncertainty. Chinese leaders want to play safe before committing themselves to new growth targets.

Li’s restraint with regard to a large monetary stimulus also reflects both the split attitude within the Chinese leadership (CBBC has written about this before) as well as the painful lessons learnt from previous rounds of economic stimulus, which have led to major misallocations of capital and numerous asset bubbles.

Nonetheless, Li’s particular emphasis on the private sector and China’s social welfare safety net are positive signs because they address two major structural problems: the persistent bias of local governments and banks towards favouring state-owned enterprises, and China’s insufficient social protections, which suppresses consumption. If the short-term measures announced during the ‘Lianghui’ are followed-up by a general and long-term policy shift, the government’s prudent approach could indeed succeed in setting China’s economy on much more sustainable path.

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TP: Can you introduce yourself, where you were born, grew up and educated?

ML: I am a mother of three sons, born and raised in Hong Kong. My entire education was in Hong Kong, from primary school to my Masters of Law in the University of Hong Kong. I have never lived in another country.

TP: Can you tell us about your career progression?

ML: I was trained in what was formerly known as Johnson Stokes & Master (now Mayor Brown), the biggest local law firm at that time. I then joined my principal to set up our own firm one year after qualifying as a solicitor. In 1991, in anticipation of the possibility of immigration after Hong Kong was returned to China in 1997, I joined the US firm Coudert Brothers.

From there, I moved on to start up a local firm with my partner Peter Carey whom I lost to a traffic accident in 1998. In 1999, I joined DLA Piper and helped that to grow from a three partner office to a multi-discipline practice with offices in Shanghai, Beijing and other Asian countries. After 17 years in DLA Piper, I joined the US firm Winston & Strawn with a view to develop its corporate practice.  In 2017, I joined Withers, also with the mission of developing corporate practice.

Throughout 40 years in the profession, I have principally been a corporate /commercial lawyer, though also have experience in real estate and private wealth management. I see myself as a trusted advisor who can assist clients in a wide range of matters.

TP: You were involved in the first-ever JV in 1979 – can you tell us how that came about and how it took place?

ML: Maxim’s Group, the Hong Kong investor in the JV, was and still is a client and I assisted them in the set-up of the first JV in 1979.

TP: Have you seen a shift in recent years from inbound (CN) investment to outbound?

ML: I would not consider it a shift but, as I anticipated many years ago, China has developed from an inbound capital receiver to also providing outbound capital.

TP: What are some of the mistakes that companies still make when dealing with China?

ML: I think some of those working with the Chinese still make the mistake of underestimating the strength of China – both in terms of commercial sophistication and financial power.

TP: How do the issues affecting Hong Kong at the moment affect China’s image? And will this affect how businesses invest in China?

ML: It really depends to whom you are asking the question and what information they have received from the media. From my perspective, China has been very constrained and has not interfered with or even given direction to what should happen in Hong Kong. Despite the provocation, China is determined not to have a repeat of June 4th and those who are waiting for the People’s Army to come into Hong Kong will be disappointed. However, if you discuss the situation with people outside Asia who have not got the full picture from the media, they would think that China has already taken over Hong Kong. The people in China are robust about the country’s future. What is happening in Hong Kong should not affect business investment in China.

TP: The Greater Bay Area is clearly a huge regional development in China, what kind of opportunities do you think it will offer to international business that wants to get involved. 

ML: Much anticipated by real estate developers, industrialists, and investors alike, the Greater Bay Area (GBA) has already received plenty of attention for its ambition to transform nine mainland cities and two special administrative regions into a new Silicon Valley-type technology and innovation hub. To help the region become more economically valuable, the initial plans are for it to become an important global centre for advanced manufacturing, and to also focus on innovation, financial services, transport and logistics, trade, and tourism and leisure. These are areas where the GBA is already strong, with different cities in the region already establishing their own unique strengths. Hong Kong is known as a world financial centre; Shenzhen is known as ‘China’s Silicon Valley’ because of its innovation and start-up culture; Guangzhou is known for manufacturing and as a logistics hub; whilst Macau and Zhuhai are known for leisure and tourism.

I think some of those working with the Chinese still make the mistake of underestimating the strength of China – both in terms of commercial sophistication and financial power.

Further to this, in January 2017, China and Hong Kong agreed to build the Lok Mau Chau Loop Technology Park. Located in Hong Kong, right on its border with Shenzhen, the park will allow Hong Kong to tap into Shenzhen’s booming innovation and start-up ecosystem while also maintaining access to Hong Kong’s strong legal system and business environment.

The initiative will have an international impact beyond the GBA, as the region is located on the maritime section of China’s ambitious Belt and Road Initiative.

TP: As a female business leader, what challenges and obstacles have you personally overcome in your career and how did you deal with them?

ML: I am often asked this question and I have to say that I have had very few challenges or obstacles as a woman. With domestic help and family support, I have always been able to maintain dedication to my work and career while raising the family. Woman are not in the minority in the legal community in Hong Kong and there is no strong discrimination against women.

TP: What advice would you give young female entrepreneurs or those trying to further their careers?

Women should not consider themselves any different from men. Women have to believe in equality first. On the other hand, it is important to have a clear understanding of one’s priorities. Thus, if a young female entrepreneur wishes to dedicate herself to her family and take a break from her career, she should do so and should feel no stigma. It does not make sense for a woman to try to do both tasks at the same time, putting herself under immense pressure while struggling to succeed with both tasks.

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Sir Sherard Cowper-Coles graduated from Oxford and joined the Foreign and Commonwealth Office (FCO) in 1977. He had tours in Cairo, Washington, and Paris, served as head of the Foreign Office’s Hong Kong Department of the Foreign Office for three years in the run-up to the handover in 1997, and was Ambassador to Israel, Saudi Arabia, and Afghanistan. He also served as Principal Private Secretary to Robin Cook when he was Foreign Secretary, and as UK Special Representative for Afghanistan and Pakistan.

His writing career started when he would compose speeches for Foreign Secretary Geoffrey Howe and write papers for Prime Minister Margaret Thatcher whilst, more recently, he has published two memoirs Cables from Kabul (2012) and Ever the Diplomat: Confessions of a Foreign Office Mandarin (2013).

After 33 years with the FCO, Sir Sherard Cowper-Coles joined BAE Systems in 2011 and then, in 2013, became Senior Adviser to the Group Chairman and Group Chief Executive of HSBC Holdings. He is currently Group Head of Public Affairs, HSBC Holdings.

Why did you decide to go down the FCO path?

I was always interested in international affairs, even as a young school boy. I remember debating nuclear deterrence in class when I was 12. Then I was lucky enough at Tonbridge School in Kent to have a master, Mike Bushby, who ran something called the China option, which I took. We were boys aged 15, and he told us that in our lifetimes, China would rise once again to be a great power. I wrote to the Chinese Embassy, and the Chinese Ambassador at the time [in about 1970] sent me a copy of Chairman Mao’s Little Red Book – an original, in English.

I knew I could have been an investment banker or a barrister but my first preference was the Foreign Office and I was lucky enough to pass the exams. On joining, you were tested for your aptitude to learn hard languages and I was told that I could choose between learning Chinese, Japanese or Arabic; out of vanity and ambition I chose Arabic because I thought I could be ambassador in more countries but if I learnt Chinese I would only have a choice of one.

With hindsight, I sometimes think I made a mistake because I think China and Chinese are endlessly fascinating. Ironically, precisely because I wasn’t a Sinologist, in 1994 I was chosen to be the Head of the Hong Kong Department in the Foreign Office, in the run up to the handover of Hong Kong. Chris Patten (then Governor of Hong Kong) didn’t like what he called “Sino-logical claptrap” and so didn’t want a Sinologist as head of the Hong Kong Department. But I actually became more Sinophile than a Sinologist.

With the turmoil we are seeing in the region today, could Britain have done things differently with Hong Kong?

In my personal view mistakes were made in 1992 in terms of forcing through a package that wasn’t sustainable. It was all taken down at the stroke of midnight in June 1997; a wiser course would have been to have a more graduated approach that would have lasted through the transition. I think we stoked up expectations that could not be fulfilled.

I flew out of Kai Tak airport on 2 July 1997 not thinking I’d be going back, so I was absolutely thrilled to be offered a job working for HSBC, which often takes me to the Mainland and Hong Kong.

For me, the eye-opener was going to China in December 2013, for the first time since 1997, with David Cameron on his big visit. The changes went far beyond just what China had done in terms of infrastructure.

They had been quite incredible years. The roads, the railways, the airports, the housing – the infrastructure had changed, but above all, hundreds of millions of people had been lifted out of poverty, given a better life, and in many cases educated to standards that are the envy of the West. Here one saw a great power, as Mike Bushby had told me about all those years ago, that had finally risen, resuming its rightful place in the world.

So, when it was suggested a couple of years ago that I might like to succeed Lord Sassoon as Chair of the China-Britain Business Council, I was absolutely thrilled. I’ve got a lot to learn about China and have been doing a crash course in basic Mandarin.

With the turmoil we are seeing in the region today, could Britain have done things differently with Hong Kong?

In my personal view mistakes were made in 1992 in terms of forcing through a package that wasn’t sustainable. It was all taken down at the stroke of midnight in June 1997; a wiser course would have been to have a more graduated approach that would have lasted through the transition. I think we stoked up expectations that could not be fulfilled.

I flew out of Kai Tak airport on 2 July 1997 not thinking I’d be going back, so I was absolutely thrilled to be offered a job working for HSBC, which often takes me to the Mainland and Hong Kong.

For me, the eye-opener was going to China in December 2013, for the first time since 1997, with David Cameron on his big visit. The changes went far beyond just what China had done in terms of infrastructure.

They had been quite incredible years. The roads, the railways, the airports, the housing – the infrastructure had changed, but above all, hundreds of millions of people had been lifted out of poverty, given a better life, and in many cases educated to standards that are the envy of the West. Here one saw a great power, as Mike Bushby had told me about all those years ago, that had finally risen, resuming its rightful place in the world.

So, when it was suggested a couple of years ago that I might like to succeed Lord Sassoon as Chair of the China-Britain Business Council, I was absolutely thrilled. I’ve got a lot to learn about China and have been doing a crash course in basic Mandarin.

What would you like to see CBBC do?

I want the China-Britain Business Council, in as apolitical a way as possible, to act as an advocate for economic and commercial engagement between the United Kingdom and China because I think it’s overwhelmingly in both countries’ interest. The view of some is that the West should de-couple from China is utterly crazy. In fact, it’s not only crazy, it’s dangerous. What the Chinese call the win-win way forward is for both sides to come together in economic, commercial and investment relationships that benefit everyone.

How will your career as a diplomat help in your new role?

I think part of it is about persuading business, but a lot will be about persuading politicians to let business be business; let businessmen get on with trading. And with Brexit in prospect, Britain’s relationship with China becomes even more important. We need to understand that Britain cannot afford, and cannot afford to be forced – as some in America would like – to choose between the US and China. So I want to build up the capacity of the China-Britain Business Council to act as a quiet, evidence-based, advocate which supports the relationship. That should be self-evident common sense.

Is there always the ability for the UK or any nation to trade without politics being heavily involved?

Not without discussion or awareness of politics. My other job is to connect HSBC with the world of politics and public policy in so far as it affects the bank. You can’t operate a business in a total vacuum; equally it’s dangerous when politicians start to interfere with trade or disrupt trade for political ends as we have seen with tariffs being imposed and the creation of a lose-lose situation. Americans are poorer. Chinese are poorer. Tensions are higher. It’s very difficult to see what anyone gains from it.

Is there a fear that other countries might also be forced to join in this trade dispute?

Well I hope not. I have seen very little sign of it so far but America is pressuring countries not to use Chinese technology and I don’t think that’s really for security reasons in any rational sense. Instead, it’s more to do with economic competition and China having a world-beating technological capability that, aside from two Scandinavian companies, the West in general, and certainly America, can’t match.

What do you see as China’s future role in the world?

No country has an entirely smooth passage through history so I am sure there will be bumps in China’s road, but it has now reached a stage of economic, intellectual and technological development that will see it will play a very powerful role in global geo-economics – in fact, I think it is already playing this role and I don’t see that being reversed any time soon. I do see a China that is quite prudent; it’s not an acquisitive power in terms of real estate, whilst it is obviously anxious to secure access to the raw materials and the natural resources that it needs.

Which is what the fears have been over the Belt and Road Initiative…

Which are fears of soft power gains. But I prefer to see the Belt and Road as something from which everyone will gain and which will provide the infrastructure that Eurasia and beyond desperately needs. Again, all boats float on a rising tide; and this is a rising tide of connectivity, prosperity and reduced trade friction.

Therefore, do you think China’s standing in the world has risen – has the image of China changed and is it now a place where people are wanting to go to study and live?

It has. People are beginning to understand and be interested in the country. But then China also has a sort of curiosity – a thirst for knowledge and learning – which I often wish we shared. There are two hundred thousand Chinese students at universities in Britain – that’s a great tribute to the quality of higher education in this country. And a very important foundation for future friendship and cooperation between the two countries.

With the current turbulence in the UK Government are we able to fully concentrate on China?

Not fully, but Asia and China are where the future lies and I want Britain to be part of that future. I wouldn’t be doing this if I didn’t believe in the relationship with China. We’re not doing it for China’s sake, we’re not doing it for its own sake, we’re doing it for ourselves because it’s in our interest; whilst others will also benefit, the primary motive is our own self-interest.

You’ve spent your career somehow being at the centre of things during the most exciting periods of history. Now you’ll be spending more time working on China can we expect China to be in the news a lot more?

Well, we’re in a period, I’m afraid, of rising tension between the United States and China. I very much hope that the United Kingdom, with the support and advocacy of the China-Britain Business Council, will continue to develop the Golden Era of good relations with China whilst, at the same time, continuing our very good relationship with the United States. That, above all, is where we want to be and we should resist being forced to choose. It’s a relationship with the world’s two greatest economies, one of which is likely in the next few years to overtake the other in size.

Do you have specific goals at CBBC?

I want CBBC to offer British companies what they really need, which is the advocacy of a powerful body. One that provides evidence and argument for why this relationship is so important to both countries, and why it is so overwhelmingly in our common interest.

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For centuries, performers, musicians and artists have used their voices to showcase injustice, high-light inequality and to rebel against the system. Entire genres of music have been created through it, from the American slaves who created blues, the anti-establishment Brits who created punk, to the disenfranchised youth of LA and New York who created rap.

Youth culture has traditionally been about fighting the system, sticking it ‘to the man’ and expressing youthful angst at perceived social injustices. However, the demonstrations in Hong Kong has caused a clash between the usually left-leaning, establishment-bashing genre of creative culture, and the defensive, nationalist tone of the mainland youth.

Most mainland Chinese have been critical of the demonstrations and expressed their support of the Hong Kong police. This has manifested in social media posts including the widely re-posted, pro-police meme created by the People’s Daily that reads: “I support Hong Kong police, you can hit me” in Chinese characters, with “What a shame for Hong Kong” written beneath in English.

This reaction isn’t entirely surprising due to the mainland’s media coverage and the narrative that is being told. But it has left many mainland stars in a bit of a quandary as to how to react to it. Celebrities in many ways are not much different from companies and their public reactions to incidents such as these can make or break a career as much as it can make or break a company. Companies are quick to feel the wrath of mainland justice-by-social-media, even if the faux pas they make is accidental. But when it comes to China’s national sovereignty, finding the balance between individual integrity and political correctness is a very fine line to walk and something of a zero-sum game.

Hong Kong Cantopop star Denise Ho’s mainland career ended quickly after she was involved in the 2014 umbrella movement in Hong Kong. She was rapidly dropped as a brand ambassador by Lancome and has firmly become persona non-grata in mainland China since she has become a voice of the current demonstrations.

Offending China could be the nail in the coffin of a rising star’s career in the mainland

And just as offending China could be the nail in the coffin of a rising star’s career in the mainland, Chinese celebrities supporting the Hong Kong police can also seriously dent an international career overseas. The Higher Brothers – arguably China’s best-known rap act – have seen their international fan base grow in no small part thanks to headlining Hong Kong’s largest music festival in 2017. However, their comments in support of the police have offended many of their supporters in Hong Kong and abroad.

Liy Yifei, star of Mulan spoke up against the protests and showed her support for the Hong Kong Police leading to a twitter backlash

Film star Liu Yifei who plays the lead in the soon-to-be-released remake of the film Mulan also publically spoke up against the protests and showed her support for the Hong Kong Police leading to the #boycottmulan on twitter. For many Mainland Chinese performers, audiences in the country they live and work in, are more highly valued than international audiences who they may only visit on occasion. Not to mention the earning potential in China alone is very healthy but it’s a hard position to be in for many of China’s emerging pop talent. It seems remaining silent isn’t an option – as even American sweetheart Taylor Swift discovered by not backing either candidate publically in the 2016 American elections. No comment will likely lead to criticism from both sides.

For stars who want to go international, coming across as nationalistic won’t win fans abroad but by not standing up for your country is career suicide at home.

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To sustain continued, robust economic growth – something of crucial importance to its legitimacy and stability – the Chinese government has lately employed a bold stimulus plan of “city grouping” (chengshiqun), the creation of a few megacities by integrating groups of cities and nearby rural areas. So far, Beijing has decreed that four “world-class” megacities should be formed: the Jingjinji Integration (2015) in the north, which includes Beijing, Tianjin, and Hebei Province (population: 110 million); the Chengdu-Chongqing City Group (2016) in the west, with 18 cities (population: 91 million); the Yangtze Delta City Group (2016) in the east that includes Shanghai and two dozen other cities in three provinces (population: 150 million); and the latest, the Greater Bay Area (2019) in the south, with nine cities that include Hong Kong, Macao, Shenzhen, and Guangzhou (population: 70 million). In addition, seven cross-provincial “national” megalopolises were also approved in 2017-18, with a total population of around 410 million: The Middle Yangtze, The Central-Plains, The Harbin-Changchun, The Beibu Gulf, The Guanzhong Plains, The Hubaoeryu, and The Lanzhou-Xining.

China’s megacities

City grouping is an example of central planning with key Chinese characteristics. It focuses on the economically prosperous and politically important regions and in it, one can see some vestiges of the “Major Region” (daqu) structure of governance and planning from the Mao era. It also allows for economies of scale to come into play. Efficient chains of production and logistic networks have already been extensively developed among the cities in these areas, and even more synergy and streamlining is likely to be harvested by further integration. It’s also worth noting that the Greater Bay Area’s design may have an additional political motive: a tighter control over the two wealthy but occasionally politically complex Special Administrative Regions (SARs) of Hong Kong and Macao.

It may be somewhat self-evident, but if the megacities can elevate themselves onto the next level of economic development, there would be enough of a boost to lift the boat of the whole Chinese economy

There are more peculiar motives as well. The megacity push reflects Beijing’s sometimes contradictory needs to maintain strong political control while stimulating the economy. It is a way to uphold the all-important household registration (hukou) system that segregates and controls the people by regulating internal migration whilst simultaneously increasing the mobility of resources, including labour and homebuyers, so as to generate new growth. By giving the most desirable first- and second-tier cities more towns to expand into, the influx of migrant “low-end people” into the glittering urban centres may be more reliably diverted and managed, while ensuring the continuation of economically beneficial urbanisation.

China’s Jingjinji Megacity area

It may be somewhat self-evident, but if the megacities, each comparable to a major EU member country in size, can elevate themselves onto the next level of economic development whilst avoiding the so-called “middle-income trap,” there would be enough of a boost to lift the boat of the whole Chinese economy, even though the rest of the country (up to three-fifths of the population) may be left behind. To be sure, China’s impressive economic growth over the past three decades has been an extraordinary model of a dual-economy and multiple societies functioning under a single government.

As it is now politically favoured, just about every provincial capital has been expanding massively to “absorb” nearby cities and counties

Like so many other central planning policies though, the devil of the megacity plan is in the detail. The plan is mostly an “administrative urbanisation” that may only lead to minimal economic advantages, if any are forthcoming at all. Urbanisation through official re-categorisation or renaming of people from rural to urban, or from lower-tier towns to higher-tier cities, is not the same as urbanisation driven by market forces. Within each megacity, there are also still numerous control mechanisms and exclusion barriers based on where one’s hukou is located:  the “central districts,” the “non-central districts,” the “remote districts” (formerly county-seats and townships), and the rural.

As it is now politically favoured, city-grouping has been emulated throughout China. Just about every provincial capital, for example, has been expanding massively to “absorb” nearby cities and counties, renaming them city districts. The national megacities and the many more “regional” mini-megacities, both inter- and intra-provincial, may make the report cards of the local governments look nice in terms of GDP figures, growth rate, and the urbanisation ratio. But the real impact on economic efficiency remains questionable. The scheme has allowed for land grabs by local officials and their contractor friends. Bureaucratic re-categorisation of regions and ever greater concentrations of power have already led to waste, irrational resource allocation, and reduced competition and innovation, contrary to the optimistic ambitions behind the plan.

The Greater Bay Area

The Greater Bay plan may bring an additional pitfall for those in Hong Kong and Macao: as they witness more complete administrative integration of the two SARs with the PRC, foreign countries like the United States may find themselves reconsidering their special treatment of the two cities, causing the “value” of the SAR brand to evaporate quickly.

Fei-Ling Wang is Professor of International Affairs at the Georgia Institute of Technology and a member of the Council on Foreign Relations, USA. His published books include Organization through Division and Exclusion: China’s Hukou System (Stanford University Press, 2005) and The China Order: Centralia, World Empire, and the Nature of Chinese Power (State University of New York Press, 2017).

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