TPP to have major impact on Hong Kong

The United States-led Trans-Pacific Partnership (TPP) trade agreement of 12 Pacific Rim countries, including the US, Japan, Brazil and Australia, is widely seen as the most important economic pact in recent years.

The deal that covers about 40 per cent of the world economy cuts import tariffs and sets common standards for trade and a range of related issues such as market access, intellectual property rights and finance.

Although the agreement was signed in Atlanta in the US after five years of sometimes bitter and tense negotiations, it must be ratified by lawmakers from every country.

The TPP, when in place, will almost definitely have a major impact on Hong Kong as a premier regional hub of commerce and finance.

The fact China is not a member of the pact has led some economic analysts to warn that Hong Kong's role as the "super-connector", as the government loves to say, could diminish.

In an article published in Shanghai Securities News last Saturday, People's Bank of China chief economist Ma Jun predicted that the TPP would shave off an estimated 2.2 per cent from the mainland's GDP.

The mainland manufacturing sector is expected to be hardest hit by increased competition from neighbouring economies which are members of the pact.

This, in turn, would trim the growth of Hong Kong's export trade - which consists mainly of re-exports to and from the mainland. The spillover effect of declining trade activities could have a far reaching impact on other services sectors. This includes trade financing, cargo handling and logistics.

Federation of Hong Kong Industries Honorary chairman Stanley Lau Chin-ho was quoted in the South China Morning Post for conceding that TPP is "unfavourable" to Hong Kong. "But it's not the end of the world," he added.

Of course it is not. In assessing the impact of TPP, it is important to bear in mind that the mainland is not Hong Kong's only major trading partner.

In a written reply to questions from the same newspaper, Hong Kong's Trade and Industry Department stated the government's stand in welcoming and supporting regional initiatives in free trade. "The TPP, in which many of our major trading partners are participating, is on our close watch," the statement said.

As a free port, Hong Kong has always thrived on the free movement of goods and services. While the government is watching, many Hong Kong business people are already making plans to take advantage of the opportunities that TPP may offer.

As Lau said, the TPP deal might speed up the migration of Hong Kong factories from the mainland to TPP countries, particularly Vietnam. In fact, this migration process has started some years ago when wages in the Pearl River Delta (PRD) region began to rise. But the progress of migration to other low-cost manufacturing bases in Asia has been slow because of the often confusing rules and regulations in different countries.

TPP is expected to address that issue by seeking to impose a uniform regulatory environment for trade and investment in all member states. Foreign investments, accompanied by other offshore trading activities, have the potential to create jobs in the higher value-added chain of the manufacturing process, as demonstrated by Li & Fung, the trading conglomerate shaped by the Harvard-trained Fung brothers, Victor and William.

Unsurprisingly, TPP has given a strong boost to the Li & Fung's shares in the Hong Kong stock market. Reiterating the "buy" recommendation for the company, Bank of America Merrill Lynch said in a report last week that TPP is favourable to sourcing agents and manufacturers (because) it could strengthen their competitive advantage and bargaining power, which will lead to both volume and margin increases in the long run.

Other than Li & Fung, the stock brokerage also listed Yue Yuen Industrial, a Taiwan footwear manufacturer headquartered in Hong Kong, Stella Holdings and Shenzhou International as major potential beneficiaries of the TPP. It has raised Li & Fung's target price to HK$7.5 from HK$7. The company's shares closed slightly higher than HK$6 last week.

Meanwhile, Hong Kong should continue to pursue closer economic integration with the mainland and identify opportunities arising from its various initiatives to expand international trade and investment. But Hong Kong business people must set their sights beyond the PRD region. This is to fulfill the city's stated mission as the "super-connector".

The author is a veteran current affairs commentator. This article first appeared in the China Daily on Oct 15, 2015.

China/Asia News Network

Join ST's Telegram channel here and get the latest breaking news delivered to you.