An element of economic and political realism was unveiled last week in the lead up to the Hong Kong SAR’s 10th anniversary in further refining the “one country, two systems principle.
Two initiatives were especially noteworthy: (1) the decision to float US$200 billion in RMB treasury bonds with a ten year maturity to finance a sovereign wealth management fund with the aim of bolstering earnings on foreign exchange reserves, much of which is expected to be channeled through Hong Kong-based banks and brokerage houses, and; (2) the expansion of Hong Kong-mainland economic ties through the Closer Economic Partnership Arrangement, or CEPA.
While the former is currently awaiting the approval of a committee of the National People’s Congress and is expected to be approved shortly, providing a short-term boon to Hong Kong’s economy, the latter covers a broad range of sectors, including banking, securities, conventions and exhibitions, medical and dental services, tourism and culture. Some of the new provisions include lowering the minimum asset requirement for Hong Kong banks to acquire holdings in mainland banks from US$10 billion to US$6 billion, extending the time period for mainland fund management companies to set up operations in Hong Kong from six months to one year, lowering the amount required to fund a mainland medical institution, clinic or joint venture from 20 million to 10 million yuan and lowering the amount for Hong Kong companies to invest in joint ventures and wholly owned travel agencies on the mainland to US$8 million and US$15 million respectively. In addition, Hong Kong performing arts agencies will be permitted to operate on the mainland and organize commercial performance on a limited basis.
Chief Executive, Donald Tsang, called CEPA “a mutually beneficial arrangement,” the latest version of which is expected to generate an estimated HK$2.6 billion annually in additional revenues for the city. More broadly, Charles Li Kui-wai, a professor of economics and finance at City University, predicted that: “CEPA will ultimately open all of [mainland] China to Hong Kong, except for military-related and other sensitive areas, according to the South China Morning Post. Over the last three years, it has resulted in US$5.1 billion in increased capital investment and brought approximately 36,000 additional jobs in Hong Kong.