Finance & Economics

Researchers Say About Advantage of Hong Kong’s Offshore Position for China

Leading Chinese researchers advise Beijing to step up its efforts to raise large amounts of foreign investment by focusing on its role in the Asian supply chain and using Hong Kong’s offshore position for appropriate purposes.

Researchers Say About Advantage of Hong Kong’s Offshore Position for China

Liu Qing, deputy director of the National Academy of Development and Strategy at the Renmin University of China, says that within the framework of the trend of global regionalization, each regional center has the opportunity to gradually strengthen. According to the expert, in the relevant context, China’s main advantage lies in the existing prospects for strengthening the Asian industrial chain.

Foreign direct investment in China in January-April of the current year was recorded at around 360.2 billion yuan ($49.7 billion). This figure is 27.9% lower than the result for the same period in 2023. The relevant information was released by the Chinese Ministry of Commerce last week.

Liu Qing says that the growth of foreign direct investment in the Asian country slowed down between 2018 and 2022. For more than ten years before the mentioned period, the corresponding indicator was on a stable upward trajectory. The expert noted that the negative factors affecting the flow of foreign investment to China were such circumstances as weak domestic demand and a slowdown in the economic growth of the Asian country.

Liu Qing says that a new round of large-scale global industrial shifts is likely to occur in the next decade. According to the expert, China should stay on top of the mentioned expected shifts.

Changes in the flows of foreign investment to the Asian country have been clearly visible since 2018. For Beijing, these changes turned out to be negative. It was in 2018 that the deterioration of relations between the United States and China began. It is worth noting that the corresponding state of affairs persists to this day and does not show signs of rapid improvement or at least similar prospects. Recently, Washington, as part of the implementation of ensuring national security measures, has focused on limiting Beijing’s technological potential by restricting the supply of advanced chips and equipment for the manufacturing of these products. Such efforts are clearly not going to improve the relationship.

Currently, there is competition among developing countries for foreign investment at the global level.

Liu Qing, during a speech at the annual Chinese macroeconomic forum at Renmin University last weekend, publicly stated his opinion that a new round of large-scale global industrial shifts is likely to occur in the next decade. According to the expert, historical experience testifies in favor of this version. In this context, Liu Qing mentioned the patterns of global large-scale industrial shifts that arose as a result of previous technological revolutions.

The expert also stated that China should focus on raising foreign investment in the sphere of services, information technology, and mining in line with global tendencies. Mao Zhenhua, co-director of the Institute of Economic Research at Renmin University, says that Hong Kong could contribute to achieving the relevant goals since it is an English-speaking system that plays undoubtedly a vital role.

Hong Kong’s common law system, which is similar to the UK one, can help mainland China raise international capital. Mao Zhenhua insists on this. The expert separately noted that Hong Kong is the only city in China that has the mentioned advantage.

Mao Zhenhua says that Hong Kong should prioritize its long-term status as a capital transit hub for mainland China and strengthen its capacity in the area of international arbitration. In this case, the principle of One Country, Two Systems should be mentioned. This means that Hong Kong is still governed by the Basic Law, which does not apply in mainland China.

Mao Zhenhua says that some venture capital and private equity firms operating in Hong Kong with investments from mainland China are facing difficulties with raising capital and withdrawing funds.

Mao Zhenhua notes the need to improve the mentioned state of affairs. According to the expert, it is important to solve the problem of the free flow of foreign capital in and out of mainland China. Mao Zhenhua also noted that it is necessary to conduct serious research on venture capital and private equity companies in Hong Kong.

Most of mainland China’s offshore investments come from Hong Kong. In 2022, the corresponding indicator was 72.56%. It is worth noting that in 2021, this figure was at 49.3%.

Chen Zhiwu, chair professor of finance at the University of Hong Kong, says that Hong Kong, along with other Asian sources of investment, was geopolitically neutral or initially favored China in geopolitical terms. The expert says that Beijing can still rely on Hong Kong as an intermediary. In this context, Chen Zhiwu said that there is not that much else China can do, implying a drop in confidence from Western investors in the world’s second-largest economy

Hong Kong currently has a highly developed free market economy. The local economic system is characterized by such features as a well-established financial market, low taxes, and almost free port trade.

As we have reported earlier, Hong Kong Growth Beats Expectations.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.