Hong Kong ‘under threat from Chinese trade zone’

HONG KONG - Agence France-Presse

China’s plans first free trade zone may jeopardize Hong Kong’s position.AFP photo

Hong Kong’s status as a financial powerhouse is under threat, analysts say, after plans for China’s first free-trade zone revealed a large-scale push to create a new international hub.

Draft proposals for the zone in Shanghai, seen by AFP, showed it goes beyond greater liberalization of trade to take in investment and financial services – including free currency convertibility.

Chinese Premier Li Keqiang, who took office in March, is backing the FTZ, which his cabinet approved last month.

“They want an offshore harbor, basically like Hong Kong,” said a financial industry executive briefed on the plans.

Hong Kong analysts say the city – which promotes itself as the business gateway to the world’s second-largest economy but is facing challenges such as high labour and rental costs – must now rise to the challenge.

“In one to three years time, if Hong Kong cannot revamp itself, it will lose its competitiveness to the trade zone,” chief China economist of ANZ Banking Group, Liu Ligang, told AFP.

Hong Kong has sought to become a major offshore management market for China’s yuan – also known as the renminbi – but the opportunity for free currency exchange offered by the new FTZ will draw business to Shanghai.

“Some of the businesses in Hong Kong could be shifted to the free-trade zone if people don’t need to use Hong Kong banks anymore,” warned Liu. “Hong Kong’s renminbi assets could also flow to the trade zone.”