The challenges of Europe’s uneven recovery and Hong Kong’s role in helping to bring the ‘China Dream’ to reality dominated discussions at the 14^th Plenary Session of the Hong Kong-Europe Business Council held in Hong Kong on 12 May 2014.

About 40 senior business executives from Europe and Hong Kong took part in the annual bilateral meeting which was co-chaired by Victor Chu, Chairman of First Eastern Investment Group and his Europe counterpart, Dr Paul Achleitner, Chairman of the Supervisory Board of Deutsche Bank AG.

Converting ‘China Dream’ to reality
Members from both sides of the Business Council debated issues arising from the ‘China Dream’ aspirations put forward by President Xi Jinping in 2012, with the aim of building national pride and achieving personal well-being for people in China. The Council concluded that innovation and technology would be critical elements in realising the ‘China Dream’ and, as such, offered the best opportunities to foreign companies.

“I think you see many industries, like automotive, they (China) never catch up far with the automotive industry from the West – there are many, many other parts, so I think if we talk about the opportunity from a corporate view, it is technology and innovation,” said one member.

Hong Kong, with its rule of law traditions and strong Intellectual Property protection regime, could serve as a platform for technology management and professional services, the Council heard.

It was also discussed that traffic congestion in poorly planned mainland cities would have a large environmental and human cost in striving for the ‘China Dream’. “People travelling, slow other people down. When you employ one more person to travel – for two hours from home to work – you make everybody else take longer as well; just a little, but you add it all up, and the costs are stupendous,” a member said.

Positioning Hong Kong
Hong Kong’s unique advantage as China’s global financial centre would continue to be a significant factor of the city’s overall development, according to Council members. In particular, the continuing internationalisation of the renminbi would provide new opportunities for Hong Kong’s financial services.

“In 2013, the renminbi settlement handled by banks in Hong Kong was about Rmb3.8 trillion, and that was a 46 per cent increase from 2012, and more than 10 times that in 2010. So in a period of three years, we have seen dramatic growth of the liquidity pool of renminbi in Hong Kong.

Not only do we have to have the largest pool, which we do now, we handle about 80 per cent of the global trade’s settlement in renminbi, and we must have more renminbi products as well to allow our investors to have more use of the renminbi that they have in Hong Kong.”

It was observed that investors in Hong Kong are much more attuned to the development in China compared to those in other financial centres around the world.

It was commented that Chinese enterprises listed on the Hong Kong stock market had raised over US$500 billion over the past 20 years, and that the new Shanghai-Hong Kong Stock Connect initiative would benefit both cities. “For the first time, international investors can, through the Hong Kong securities exchange, under Hong Kong law, under Hong Kong regulation, and within Hong Kong’s financial system, have direct access to the A Shares – which are the shares listed on the Shanghai exchange,” a member said.

“And mainland investors will be, for the first time, able to buy and sell stocks listed in Hong Kong. Hong Kong and overseas investors, trading and settling Shanghai securities in renminbi only increases the product and investment opportunities for the local renminbi pool. Mainland investors will trade Hong Kong stocks in Hong Kong dollars, but will settle the trade with China in renminbi – therefore they will be able to use the domestic renminbi to invest in international assets.”

Europe’s Bumpy Road to Recovery
While acknowledging that the European economy was now growing more strongly than in recent years, the Council listed several lingering impediments to growth: a lack of internal governance of the European Union; rigid labour rules; over boarding of social welfare schemes; high employment costs; deflationary risks; high energy costs; and, less productive capital markets compared to the United States.

“The growth path for Europe is now much better - this year it looks like one and a half per cent for the Eurozone will be very realistic, with Germany about two per cent, France perhaps one per cent and Spain one per cent,” a European member said.

He added: “We obviously have, and that is perhaps the biggest impediment, particularly with comparisons to United States and to Asia, our labour rules which are very, very rigid. We have this bad fortune that we have been the origin of the social revolution of this world in the second half of the 19th century, and this unfortunately lasts a little longer.

“But this clearly is, if I would have to rank the rocks in the road, is probably the largest rock. If we look forward, we still obviously have to finalise the fiscal tax union, which you can see is still an issue but it's also being tackled.”

The Council considered that establishing the EU Banking Union would be the next biggest pan-European effort since the launch of the Euro.

Global Trade Agenda
Since the stalling of the Doha Development Round in 2005, there had been an emergence of many bilateral free trade agreements and a few regional agreements, which is posing a new challenge to the globalised economy.

“This is a very complex map we’re drawing here, in the absence of one single large multilateral agreement,” said a member.

“So, there’s a big question, whether the original deals are too complex and are too overlapping to be multilateralised later on. It would be quite difficult to compose, or transform, those bilateral or regional agreements into something wider and there’s no fixed scheduled to solve this.”

It was agreed that there is a need to underpin the multilateral system. A member said, “For those of us who believe in the multilateral system, obviously the WTO (World Trade Organisation) is the best that we have because it’s the fairest and the most non-discriminatory. The difficulty is that the WTO system is so dysfunctional, and you know, we have to rebuild one, but it will take decades to find a new system.”

US-China Relations
In a Special Session entitled “A Conversation with the Hon. C.H. Tung”, the former Chief Executive of the HKSAR and Vice Chairman of the Chinese People’s Political Consultative Conference (CPPCC) said that Chinese and US Presidents had worked hard to improve the bilateral relationship over the past 40 years. Mr Tung added that China’s strategic intent around the world was peace, and to build long-term prosperity. He said that, with annual GDP growth of seven per cent over the next 10 years, it was predicted that US$9 trillion would be added to the mainland’s economy.

The next plenary session of the Council is scheduled to take place on 12 May 2015 in Paris. The HKTDC serves as the Business Council’s secretariat.

• Joe Kainz
• Tel: (852) 2584 4216
• Email: joe.kainz@hktdc.org

About the HKTDC
A statutory body established in 1966, the Hong Kong Trade Development Council (HKTDC) is the international marketing arm for Hong Kong-based traders, manufacturers and service providers. With more than 40 global offices, including 11 on the Chinese mainland, the HKTDC promotes Hong Kong as a platform for doing business with China and throughout Asia. The HKTDC also organises trade fairs and business missions to connect companies with opportunities in Hong Kong and on the mainland, while providing information via trade publications, research reports and online. For more information, please visit: www.hktdc.com.

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