One of the conclusions of the Conference which has already got strong support from President Chen is to change the "no haste, be patient" policy towards economic links with Mainland China into "actively open up, effectively regulate".

Officially, Beijing is so far rather cool towards the enthusiasm from Taiwan (the official line is that Taiwan must accept the "one China" principle as the basis of any negotiation). But from a tactical perspective and at the business level, Mainland China is actively building up economic links with Taiwan.

So far as Hong Kong is concerned, there is a concern that Hong Kong could be seriously affected by the eventual building up of "three links" between the two sides of the Taiwan Strait. This is not a new subject. The Hong Kong Trade Development Council published a detailed report in July 2000 on this issue.

The commentary below gives a concise updated analysis.

From a broader perspective, the key points to note about this subject are:

The short-term direct impact of cross-strait "three links" on Hong Kong

Tourism

Visitors from Taiwan (about 2.4 mn in 2000) account for 18% of Hong Kong's total visitor arrivals. Of these travellers, 36% of them go to China with or without staying in Hong Kong (Hong Kong Tourist Board estimate). If all of these China travellers do not go through Hong Kong after the "three links" are established, Hong Kong's total visitor arrivals will drop by about 0.86 mn, or 6.6%. But in reality, many of these travellers are business travellers who go through Hong Kong to Guangdong. It is likely that some of them will continue to come to Hong Kong even after "three links" (some may fly direct to Shenzhen or Guangzhou).

The economic impact on Hong Kong of a reduction in transit travellers is limited, as the visitors lost are not spending a lot in Hong Kong anyway, except on transportation. But the impact on a Hong Kong airline could be substantial.

There is also a possibility that there will be a lot less Taiwanese travellers coming to Hong Kong for vacation when a lot more holiday destinations are opened up suddenly in Mainland China. How far this would happen is difficult to predict at this stage.

Trade

Cross-strait indirect trade through Hong Kong (ie, re-exports of China origin to Taiwan and vice versa) accounts for about 6.5% of Hong Kong's re-exports. In value-added terms, it is about 1% of GDP.

Statistics on transshipment (which are not included in the trade statistics) show that cross-strait transshipment in 2000 accounted for about 4% of Hong Kong's total cargo throughput.

Even if all such indirect trade is lost, the impact on Hong Kong is not too serious.

The cross-Strait trade that goes through Hong Kong is about 35% of all cross-Strait trade (the others, primarily the trade with east or north China, go through Korea, Japan or other places). In reality, the cross-Strait trade going through Hong Kong relates to the trade with southern China, particularly the Pearl River Delta. With "three links", there would be more competition between Hong Kong and Shenzhen for such trade.

Hong Kong's role as a base for Taiwan firms

The role of Hong Kong as an investment intermediary for Taiwan companies is unlikely to be affected very much by the "three links" in the short term. For paper companies, it is unnecessary for them to cancel their registrations in HK after the "three links" since the cost of maintaining these offices is not high. For companies actually having a physical presence here, they still consider Hong Kong as a good place to set up holding companies for their Mainland investment. Hong Kong's low tax rate and sound financial market serve these companies well in the management of their Mainland investments.