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ASIA
has witnessed an increase in integration
in recent decades, evidenced by strong intra-regional
trade and capital flows, negotiated trade
agreements, the formation of trade blocs
and, more recently, the Belt and Road Initiative.
These
developments are highly relevant and important
to Hong Kong, which is expected to grow
with the region by facilitating trade and
investment between China and ASEAN economies,
and by providing trade-related fundraising
and business services.
Bilateral
trade between Hong Kong and other Asian
countries has ballooned in recent years.
In the past five years, Hong Kong's total
trade of merchandise with China and ASEAN
countries increased 9.6 per cent and 10.1
per cent a year, respectively, with electronic
parts and components comprising a large
and growing segment.
To
put this into perspective, Hong Kong's total
merchandise trade with traditional markets
- the US, EU and Japan - grew at an annual
rate of 4.8 per cent in the same period.
The
trend has reflected the vertical specialisation
in Asia and Hong Kong's role as a trading
and logistics hub. Asia's transformation
from a fragmented production base into a
sophisticated production network for electronics
engenders heavy intra-regional traffic.
Japan,
South Korea, Taiwan and Singapore - the
more developed economies in the region -
supply higher-value electronic components
such as semiconductors, while countries
including Indonesia, Malaysia, Thailand
and China focus on the more labour-intensive
production of other electronic components,
testing and assembly works. Lately, Vietnam
has emerged as an alternative assembly base
due to the rising costs of production in
China.
Despite
the complete implementation in 2010 of the
China-ASEAN Free Trade Area, where tariffs
between China and ASEAN countries were removed,
Hong Kong still assumes an important role
by providing efficient logistics and distribution
services between them.
Along
with the strong trade flows of merchandise,
the trade in services between Hong Kong
and ASEAN countries has also recorded remarkable
growth in recent years.
In
2013, this bilateral trade in services amounted
to HK$117 billion (US$15.08 billion), representing
an increase of 11.1 per cent a year from
2009 to 2013 and accounting for 8.4 per
cent of Hong Kong's total trade in services.
Transport, travel and other business services
constitute Hong Kong's major services trade
with ASEAN countries.
ASEAN
countries are expected to see further industrialisation
and economic development. An important development
in the region is the establishment of the
ASEAN Economic Community (AEC) by the end
of 2015. The AEC envisages four characteristics:
a single market and production base; a highly
competitive economic region; a region of
equitable economic development; and a region
fully integrated into the global economy.
One
of the AEC's goals is the reduction of tariffs
on merchandise trade among ASEAN countries,
which has largely been realised. However,
progress on liberalising non-tariff barriers,
movements of people and capital, and trade
in services are lagging behind.
Pressure
to protect domestic industries still runs
high and there is little transparency and
standardisation in investment regulations.
Furthermore,
liberalisation has been hampered in many
areas by the built-in flexibilities of the
AEC, which allows member states to liberalise
according to each country's readiness.
The
economic, language and cultural diversities
among ASEAN countries are also major hurdles
in creating a common economic area as envisaged
in the AEC's statement of aims.
According
to a survey conducted by JWT Asia Pacific
in 2013, in which a total of 2,400 people
aged 20 to 49 in Thailand, Singapore, Malaysia,
Vietnam, Indonesia and the Philippines took
part, 67 per cent of respondents were aware
of the AEC. Awareness was the highest in
Thailand (97 per cent) and Vietnam (88 per
cent), while the lowest was in Singapore
(42 per cent).
Indeed,
expectations of the AEC are not running
high in Singapore's private sector, according
to our conversations with the trade. The
sector generally knew that the AEC will
be launched in 2015, but assumed its initial
impact will be minimal. Change will not
happen overnight, and 2015 should be seen
as the beginning of ASEAN's economic integration
rather than the ultimate deadline.
In
any case, the ASEAN bloc is moving towards
the goal of an attractive business environment
through simplifying tax, customs and foreign
investment, stamping out corruption and
upholding the rule of law. And with reduced
trade and investment barriers, intra-regional
trade will increase and investment will
be further drawn to lower-cost areas in
the region, forcing middle-income countries
such as Malaysia, Thailand and Indonesia
to move up the value chain.
The
Hong Kong-ASEAN free-trade agreement, the
negotiations for which are now underway,
will be critical in matching the anticipated
stronger demand for services in the region.
While Hong Kong has minimal production and
does not apply any tariffs on imports, the
significance of the free-trade agreement
will be on the reduction of non-tariff barriers
and the promotion of economic, technical
and intellectual-property cooperation in
areas of mutual interest.
The
China-proposed Belt and Road Initiative
will further strengthen regional co-operation.
The initiative aims to orient the trade
routes towards ASEAN countries with a proposed
China-Indochina Peninsula Economic Corridor
and a maritime route linking coastal China
to Europe through the South China Sea, the
Indian Ocean, the Persian Gulf, the Suez
Canal and the Mediterranean Sea.
The
Chinese government is cooperating with Thailand,
Cambodia, Laos, Myanmar and Vietnam - the
five ASEAN countries in the Indochina Peninsula
- to jointly plan and build an extensive
transportation network, as well as a number
of industrial co-operation projects. They
also aim to create a new mode of cooperation
for fundraising and promote sustainable
and coordinated socio-economic development.
Meanwhile, China and the maritime ASEAN
countries are actively investing in their
maritime infrastructure.
Leveraging
on its strength as an international financial
centre in the region, Hong Kong is expected
to serve as the fundraising and financial
platform for these large-scale infrastructure
projects and offer offshore renminbi services,
including cross-border trade settlement
and bond issuance. Hong Kong's service professionals
will assume an active role by providing
services in areas of law, banking, accountancy,
insurance, architecture and engineering
etc, amid the expanding trade and economic
activities in the region.
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