{"id":172600,"date":"2020-06-23T10:24:54","date_gmt":"2020-06-23T14:24:54","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=172600"},"modified":"2020-06-23T10:24:54","modified_gmt":"2020-06-23T14:24:54","slug":"hainans-asean-future-and-dark-clouds-over-hong-kong","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2020\/06\/hainans-asean-future-and-dark-clouds-over-hong-kong\/","title":{"rendered":"Hainan\u2019s ASEAN future and dark clouds over Hong Kong"},"content":{"rendered":"
June 23, 2020<\/div>
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By Dan Steinbock
\n<\/b><\/strong><\/p>\n

– The Hainan Free Trade Port plan is aligned with China\u2019s new Silk Road initiatives, the Greater Bay Area plan and deeper ties with Southeast Asia. Hong Kong\u2019s real threats are closer and farther.<\/b><\/strong><\/p>\n

On June 1, the Chinese government published its Hainan masterplan. It seeks to transform the southernmost province, separated from Guangdong\u2019s Peninsula by the Qiongzhou Strait, into a Free Trade Port (FTP). The plan will turn China\u2019s largest and most populous island to its biggest special economic zone (SEZ).<\/p>\n

The initiative stems from the early days of Chinese economic reforms. Following the first special economic zones in Guangdong and the opening of further 14 coastal megacities to overseas investment, the government disclosed its plan to transform Hainan into China\u2019s largest SEZ in 1988.<\/p>\n

In the West, Hainan\u2019s long-term plan has been seen as a reaction to recent turmoil in Hong Kong and the Trump administration\u2019s controversial trade war against China.<\/p>\n

In reality, Hong Kong\u2019s real threats are elsewhere.<\/p>

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Vital link to ASEAN and 21<\/b><\/strong>st<\/b><\/sup><\/strong>\u00a0Century<\/b><\/strong><\/p>\n

Maritime Silk Road<\/b><\/strong><\/p>\n

In Hainan, things began to change in 2009, when the Chinese government began to transform the island into an international tourist destination by the early 2020s. As investment inflows intensified, particularly in real estate, another surge ensued in the early 2010s, when Hainan came to be seen as a frontline to Southeast Asia, and as a vital node in the Maritime Silk Road along the Belt and Road Initiatives.<\/p>\n

Due to new protectionism in the West, that role has steadily increased in importance. In early 2020, the rising bilateral trade with ASEAN accounted for 15% of China\u2019s total trade volume, relative to 11% and 14% with the US and EU, respectively.<\/p>\n

With its proximity to Southeast Asia, Hainan possesses unique advantages as a future free trade port. With more than 9 million people, it is a fourth more populous than Hong Kong and almost twice as big as Singapore. And by land area \u2013 35,000 km2<\/sup>\u00a0– it is more than 30 times the size of Hong Kong (and nearly 50 times larger than Singapore). That\u2019s vital for an international trade hub.<\/p>\n

According to the four-stage timeline, Hainan should become an operational free trade zone during this year. In 2020-25, Hainan\u2019s free trade port should be in place, with an attractive business environment, improved industrial competitiveness, sound rule and law. In 2025-35, the FTP is expected to mature operationally. And by 2050, Hainan should have established, strong international influence.<\/p>\n

The Hainan masterplan seeks to liberalize cross-border flows of trade, investment and capital, and people, transport and data. But its current positioning and industry focus are different from Hong Kong.<\/p>\n

Hainan will play more of a complementary role \u2013 not a competitive rivalry \u2013 to Hong Kong.<\/p>\n

Dark clouds over <\/b><\/strong><\/p>\n

Hong Kong\u2019s future<\/b><\/strong><\/p>\n

Under the 1992 \u201cUS-Hong Kong Special Policy Act\u201d and after the 1997 handover of Hong Kong from Britain to China, Washington has treated the city separately from the mainland in matters of trade exports and economic control.<\/p>\n

In the past two decades, there have been periodic attempts by mainly localist and separatist groups in Hong Kong to undermine the status quo. In the West, they are seen as \u201cpro-democracy\u201d groups, whereas China sees them as destabilizing forces, due to their close cooperation with regime-change forces in the US and UK.<\/p>\n

These efforts intensified in summer 2019, which saw a violent protest escalation that undermined Hong Kong\u2019s recovery, pushed it to recession even before the pandemic and has contributed to the city\u2019s current, first-ever back-to-back recession.<\/p>\n

At the same time, cooperation between some protest leaders and US Congress led to an amendment in the 1992 Act. The 2019 \u201cHong Kong Human Rights and Democracy Act\u201d allows US government to impose sanctions against Chinese and Hong Kong officials and requires US agencies to conduct an annual review to determine whether changes in the US-Hong Kong trade relations are warranted.<\/p>\n

In Beijing\u2019s view, such a law would be comparable to a Chinese Act that would allow China to conduct reviews and impose sanctions against US government, state and municipal officials depending on, say, the dire state of race relations in America.<\/p>\n

Nonetheless, in late May, US Secretary of State Mike Pompeo certified to Congress that Hong Kong no longer enjoys a high degree of autonomy from China. Days later, President Trump announced some sanctions would be placed on Hong Kong.<\/p>\n

With these statements, the White House has paved a potential way to bad business, diplomacy, precedent and still another major policy mistake.<\/p>\n

How 2019 Act would undermine<\/b><\/strong><\/p>\n

American multinationals and Hong Kong<\/b><\/strong><\/p>\n

Today, there are some 85,000 US citizens in Hong Kong, which hosts 1,300 US companies with Asian headquarters in the city. If the new 2019 Act is implemented, they could leave for Singapore or elsewhere, which would penalize their cost structure, or relocate to China, which would undermine the White House\u2019s objectives. In both cases, US would lose its bilateral goods and service trade surplus of $34 billion with Hong Kong, which would cost still more US domestic jobs.<\/p>\n

The long-term diplomatic impact could be worse. For decades, US presence in Hong Kong has been a major influence channel in East Asia, while US multinationals\u2019 HQs in Hong Kong and their subsidiaries in China have served as vital instruments of increasing bilateral understanding. Yet, the Trump White House seems intent to undermine both.<\/p>\n

Since the 2019 Act could derail Hong Kong\u2019s economic and political future, it represents everything but the best interests of the city. That\u2019s perhaps why some leading Hong Kong protesters have recently, but only belatedly, warned about the consequences of the Act that they themselves had made possible.<\/p>\n

The Trump White House\u2019s policy mistake could also trigger a process in which Shanghai, thanks to its Free Trade Zone and Lingang New Area, could receive many new US companies, particularly financial giants, that the 2019 Act would force to leave Hong Kong. Since 2009, Shanghai has been transformed into the mainland\u2019s global financial and trade hub. Those steps would certainly be accelerated.<\/p>\n

And thanks to the Greater Bay Area initiative – China\u2019s huge Silicon Valley-like region that links Guangdong\u2019s megacities, Hong Kong and Macau – US technology giants could flock to Shenzhen and elsewhere, while those that operate in Southeast Asia or have significant shipping interests could move to Hainan.<\/p>\n

The greatest threat <\/b><\/strong><\/p>\n

to Hong Kong<\/b><\/strong><\/p>\n

Hong Kong\u2019s greatest threat has never been the myth that China would want to turn it into \u201cjust another Chinese city.\u201d That\u2019s precisely the one thing China does not want.<\/p>\n

Instead, Hong Kong\u2019s greatest risk is irrelevance. If its greatest strengths are undermined, it could become inconsequential as a major global economic hub.<\/p>\n

Indeed, if the White House prevents the city from realizing its unique advantages \u2013 world-class finance, shipping and trade \u2013 Hong Kong would face accelerated decay in the future.<\/p>\n

Hainan\u2019s free port is not Hong Kong\u2019s threat. The city\u2019s real risks are closer and farther.<\/p>\n

About the Author:<\/strong><\/em><\/p>\n

Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and <\/i><\/em>the founder of Difference Group. He has served at the India, China and America Institute (USA), Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see <\/i><\/em>https:\/\/www.differencegroup.net<\/i><\/u><\/em><\/a><\/p>\n

A shorter version of the commentary was released by China Daily on June 19, 2020<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

By Dan Steinbock – The Hainan Free Trade Port plan is aligned with China\u2019s new Silk Road initiatives, the Greater Bay Area plan and deeper ties with Southeast Asia. Hong Kong\u2019s real threats are closer and farther. On June 1, the Chinese government published its Hainan masterplan. It seeks to transform the southernmost province, separated […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-172600","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/172600","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=172600"}],"version-history":[{"count":1,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/172600\/revisions"}],"predecessor-version":[{"id":172601,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/172600\/revisions\/172601"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=172600"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=172600"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=172600"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}