Mainland helps HK boom

CEPA will continue to expand and deepen cooperation, which will promote regional and national prosperity

Fifteen years have passed since Hong Kong returned to China in 1997, but the scenes of that historic moment remain etched in my memory. Changes have taken place, in a quiet but substantial manner, and it never ceases to amaze me how close the economic ties between the Hong Kong Special Administrative Region and the Chinese mainland have become.

A look at the Hong Kong stock market reveals that of the 49 stocks selected as the constituents of the Hang Seng Index, 22 are either H shares, shares of companies incorporated in the Chinese mainland, or red chips, the stocks of companies incorporated outside the Chinese mainland but controlled by mainland entities. In terms of market capitalization and turnover, mainland companies already account for a larger proportion than local companies, and they have become a significant part of the Hong Kong stock market.

The increasing importance of mainland companies in the Hong Kong stock market has not been an overnight process. Over the past 15 years, the special administrative region and the mainland have worked hard to develop their economic and trade relations, and their roles have evolved with the times, which can be conveniently divided into three five-year periods.

During the first five years following the handover, Hong Kong served as the "tutor" for mainland companies. That was a critical period when China was exploring its economic path toward integrating with the global economy. It formally joined the World Trade Organization at the end of 2001 after years of struggle. Over this period, mainland companies learned from their Hong Kong counterparts, especially those based in the mainland, which were benefiting from the mainland's low-cost labor and plants, and preferential policies.

During the following five years, which were the first few years after China's accession to the WTO, the country geared up for a period of economic expansion. However, mainland companies as a whole still fell short of the global standard, and Hong Kong played a vital role in helping mainland companies "go global". It was over this period that many mainland companies listed in Hong Kong, making Hong Kong their center for raising capital and enhancing Hong Kong's status as an international financial hub.

The last five years have seen China overtake Japan to become the world's second largest economy, and its growing global clout has a far-reaching influence on the global economy. The Hong Kong Special Administrative Region will maintain its vitality by cooperating with its neighbors in the Pearl River Delta region, which will boost the economic prosperity of the whole nation.

The past 15 years have been a turbulent time for the global economy, and Hong Kong has been hit by one crisis after another beginning with the onset of the Asian financial crisis in 1997 and other subsequent external shocks. Hong Kong would not have been able to ride over all these challenges without the support of the central government. The outbreak of SARS, severe acute respiratory syndrome, in 2003, dealt a heavy blow to Hong Kong's economy, with its tourism industry suffering the most.

The Chinese mainland signed the Closer Economic Partnership Arrangement with the special administrative region, which relaxed the restrictions on people in some mainland cities visiting Hong Kong and this has played a crucial role in restoring Hong Kong's tourism industry, retail and service sectors.

As a member of the industrial and commercial sector, I am most grateful to the Closer Economic Partnership Arrangement, which has been phased in over the past nine years and rendered tariff-free treatment to all products originating from Hong Kong since 2006. The tariff-free arrangement has helped Hong Kong enterprises save 3.4 billion yuan ($503.54 million). The scope of CEPA will continue to be enriched and expanded, further deepening the economic and trade cooperation between the mainland and the special administrative region.

Vice-Premier Li Keqiang visited Hong Kong in August 2011 and announced 36 central government measures to support Hong Kong's social and economic development, including supporting Hong Kong's participation in international and regional economic cooperation and encouraging Hong Kong to develop creative offshore yuan financial products.

President Hu Jintao has just concluded a three-day visit to the special administrative region for the anniversary celebrations and said the central government will consolidate Hong Kong's status as an international financial center and continue to build confidence in its long-term prosperity.

The author is president of Economic and Trade Association HKSAR.