Ever since the reform and opening up, Hong Kong has begun its close relationship with the Mainland China and served as a centre for trade between China and the world. In 2003, the Closer Economic Participation Arrangement (CEPA) was signed between China and Hong Kong, which marks a milestone in the process of economic integration. So far, Hong Kong has become the largest source of overseas investment in the Mainland and the biggest overseas investment destination, and thus is the mainland's most important trading partner. Hong Kong and the Mainland have achieved a great economic development by benefiting each other, which further strengthen Hong Kong's status as an international financial, shipping and trade center. However, with the fast economic development in the Mainland, Hong Kong as China's most competitive city has been challenged by Beijing and Shanghai. For example, Shanghai outnumbers Hong Kong and becomes the world's biggest container ports in 2010. Due to such challenges, Hong Kong should further integrate with Mainland to establish a clear direction and positioning for future development and maintain a competitive advantage. In the following, we discuss the economic integration between Mainland and Hong Kong from different perspectives so as to create a unique positioning for Hong Kong.
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Hong Kong, with a fusion of Chinese and Western cultures and also as a free port with no import tariffs (duties) on goods entering Hong Kong, has a unique advantage as a tourist city. It is without a doubt that tourism in Hong Kong is booming and will keep on booming in the future. Ever since 2003, travelers from the mainland China can visit Hong Kong easily and conveniently under the solo travel policy (STP) where residents in certain cities of the mainland can get the permission to visit Hong Kong for a maximum of seven days each time. This scheme has a significant impact on Hong Kong's economy since retail industries account for a large proportion of the GDP in Hong Kong.
Mainland residents, especially from those economically fast-developing cities, such as Beijing, Shanghai, Guangzhou and Shenzhen, prefer to buy imported foreign fashion labels than the local ones and that is why they choose to travel and shop in Hong Kong. Furthermore, with the serious issue of food security in mainland China, together with the growing CPI and currency inflation, more and more people come to Hong Kong for shopping articles for daily use. It is estimated that the number of mainland residents visiting Hong Kong in the future will go on growing. However, Hong Kong government and the retails industries are experiencing a bottleneck for accommodating a huge number of travelers from mainland. For example, mainland residents are frequently waiting for a long time to cross the border in weekends, not to mention in the golden week. The retail industries are also experiencing a bottleneck for providing certain food such as baby milk powder. The government and the retail industries should improve their capabilities to meet the challenges in the future.
2. Industrial upgrading
Ever since 1980s, Hong Kong-based entrepreneurs have made a lot of investments in Mainland China, most in Guangdong. They operate as proprietor of the plant factory in mainland while as traders in Hong Kong, where they import goods from their factories in mainland and export those goods to the rest of the world. Hong Kong-based entrepreneurs have taken advantage of the abundant and relatively cheap labor and resource in the mainland to cut down the manufacturing cost successfully.
With the decline of the US economy, China's foreign trade export is significantly reduced. The Guangdong manufacturing environment has been changing dramatically and the Guangdong government has advocated industrial upgrading, which aims to reduce the traditional labor-intensive high-polluting industry and promotes high and new technology industries. Further, the central government has launched a set of new policies, for instance, cancellation and reduction of tax refunds for low-end goods exports and the introduction of a labor law to protect employees' interest, which further hurts the low-end and low-cost manufacturing. Under such context, Hong Kong entrepreneurs find it difficult to maintain their operation in Guangdong. In such a changing environment, innovation is the only way for Hong Kong entrepreneurs to survive in Guangdong. The Hong Kong entrepreneurs should cooperate with Shenzhen to turn Shenzhen-Hong Kong region into a global financial center, logistics center, trade center, innovation center and International Cultural and Creative Industry Center.
3. Financial industry
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Hong Kong has always been a gateway for mainland enterprises going global, and for foreign firms seeking access to the Mainland, thus Hong Kong's strategic advantage in connecting global capital and China led to the rapid development of its financial industry. Although Beijing, Shanghai, and Shenzhen continue to develop their finance sectors, they seem far from threatening Hong Kong's position. Table 1 shows the Global Financial Centre Index (GFCI) for Hong Kong, Shanghai, Beijing, and Shenzhen. As shown in Table 1, there is still a long way to go for the mainland cities to catch up with Hong Kong in financial industry.
Table 1. GFCI ranks and rankings from 2010-2012
Further, due to the corruption and the insider trading in Mainland China, Hong Kong has the advantage in institution, which offers a fair trading environment compared to Mainland. Nevertheless, Hong Kong is easier to be attacked by financial crisis (for example, 1997 Asian financial crisis), thus it should rely on the Mainland supply-side strengths (a huge amount of capitals) to maintain its leadership as a financial center in Asia. For instance, Hong Kong should develop a more geographically diverse base for financial services in mainland China so as to attract more capitals.
4. Service industry
Hong Kong is the most open and liberal economy in the world and it has so many advantages in education, regulatory, and legal system and it can offer suggestions and set a good example for the Mainland to study.
Through absorbing the advanced experience of the world, Hong Kong's education system and mechanism, as well as teaching methods, have a broad global perspective and a wide range of international channels of communication. In the Mainland China, there are rich education resources, especially solid quality of basic education. The teachers have a strong desire to understand the world and the students are generally hard-working. The Mainland and Hong Kong can set up more cooperation projects and training programs to further the education communication.
Compared with Hong Kong, Mainland China has a weak regulatory and legal system. Despite the great economic achievement, Mainland China has to keep on improving its regulatory and legal system, where they can learn from Hong Kong's experiences. Hong Kong should also develop business to provide consulting service to the Mainland.
Due to the social and economic ties between Hong Kong and the mainland, they have become inseparable from each other. With Mainland China's rapid economic development, Hong Kong should further its economic integration with the Mainland to keep its prosperity. As a tourist city, Hong Kong should improve its facilities to meet the challenge of an increasing number of Mainland people visiting. The entrepreneurs from Hong Kong should upgrade their business in the Mainland and invest more in high technology oriented business so as to survive. Despite the huge amount of capital in Mainland China, Hong Kong is still the financial centre in Asia and it can rely upon the Mainland's supply-side strengths to do more business and maintain its advantage. Mainland China and Hong Kong should strengthen cultural exchanges so that the Mainland can have a broad global perspective and Hong Kong can understand the Mainland more to further cooperation in other areas. Although Mainland China has experienced remarkable economic growth for the last 30 years, they have a weak regulatory and legal system compared to Hong Kong, which is crucial for healthy and long-term economic development. Therefore, Mainland should learn from the experiences of Hong Kong and try to provide a stable environment for the sustained and sound development of China's economy.