Stripped of its industries and refocused on its banks, stock exchange and port, Hong Kong has become the hub of China's new economic world.
"The freest economy in the world": for the twelfth consecutive year, in January, Hong Kong came out on top, ahead of Singapore, in the Index of Economic Freedom drawn up by the Heritage Foundation. It's hardly surprising that the conservative American think-tank should once again single out the sweet practices of a free port where tax on profits is limited to 16 %, where income tax remains contained, whatever happens, under the 20 % mark, where repatriation of the results of subsidiaries is free of charge and where VAT is a foreign word. But behind the immovable permanence of Hong Kong's liberal credo, enshrined every year by the Heritage Foundation, lies a radical change.
Hong Kong has changed. Starting with its status since its handover to China in July 1997. But apart from the colour of the flags and the replacement of God Save the Queen by the Chinese national anthem, one would almost be tempted to say that this is no more than a "detail", given that the status of Special Administrative Region (SAR) and the doctrine of "one country, two systems" have enabled Hong Kong to retain its distinctive character. But the key lies elsewhere: in a radical metamorphosis of the island's economic raison d'être.
To understand this, all you have to do is go to the History Museum in Chatham Road, where the exhibition rooms devoted to the 60s and 70s bring together all the objects that made Hong Kong famous at the time: that of a simple processing industry playing on the comparative advantages of an open economy and cheap labour. From flashlights to T-shirts, from quartz watches to the latest electronic trinkets, "made in Hong Kong" has had several successive symbols.
The sudden switch from blue collar to white collar
There's a radical change of scene in the room devoted to the 80s and 90s: images of overcrowded workshops are replaced by those of neon-lit trading floors, where the blue collar gives way to the white collar and the sewing machine to the computer. The iconographic symbol of a society that has become tertiary, where industry now accounts for just 5 % of GDP. Wealth is now made outside factories. It is being made in ports and airports: Hong Kong has become Asia's main logistics centre, through which almost a third of Chinese trade passes. It takes place in financial institutions, with a banking sector made up of 197 establishments and 87 representative offices of foreign banks, with a balance sheet of almost 930 billion dollars at the end of 2005. And finally, the stock market, which has become the second largest in Asia behind Tokyo in terms of capitalisation.
The development of the Chinese market is obviously no stranger to the expansion of the Hong Kong Stock Exchange, even if the channels of interaction have varied over time. In the 1980s, the stock market was driven by major Hong Kong investors looking to raise funds to conquer the Chinese market. Today, it is largely invested by Chinese companies themselves who, through "H shares" and "Red Chips", now represent more than a third - 36.5 % to be exact at the end of 2005 - of the total market capitalisation of the Hong Kong stock market. In 1995, they accounted for just 6 %.
The stock market as a barometer
The trend was further reinforced in 2005, with the listing of 84 companies from the People's Republic of China on the Hong Kong Stock Exchange, including China Construction Bank. "During the 1980s, Hong Kong regained the role of gateway to the Chinese market that it had lost in 1949. Today, it is reinventing itself by becoming an exit point for Chinese companies. What is happening on the stock market is a good illustration of this," sums up Gilles Guiheux, Director of the Centre d'études français sur la Chine contemporaine.
For both the People's Republic of China and the Hong Kong Special Administrative Region, this new situation has nothing but advantages: Chinese companies find on the island a much healthier and more open financial centre than the Shanghai Stock Exchange, while Hong Kong investors can participate more easily in the boom in mainland China.
Well-understood interests
The operation is already well established on the industrial front. The Hong Kong Economic Mission notes that "more than 700,000 industrial jobs have been destroyed in Hong Kong, but Hong Kong entrepreneurs directly or indirectly employ 12 million people abroad". Mainly in China, of course, and often just behind the demarcation line, in the Chinese province of Guangdong - Canton, Shenzen, etc. - which receives almost half of all foreign investment in Hong Kong. - which accounts for almost half of Hong Kong's investment in China. Better still: after industry, Beijing is now inviting Hong Kong investors to take an interest in China's tertiary sector, thanks to the new CEPA (Closer Economic Partnership Arrangement) agreements which, since January 2005, have given them privileged access to 18 major service sectors on the continent, including, of course, financial services.
But there is a certain irony in this fine story of well-understood interests between China and its new Special Administrative Region: the clouds of pollution know no borders, and the intense industrial activity that reigns in Guangdong, largely financed by Hong Kong investors, plunges the island into a thick and almost permanent smog. But in China, as elsewhere, you can't make an omelette without breaking eggs.
