Speech by SCED at seminar on "Free Trade and Globalisation - The Hong Kong Experience in Retrospect and the Prospects" (English only)
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Professor Lau (Ralph and Claire Landau Professor of Economics of the Chinese University of Hong Kong, Professor Lawrence Lau), Professor Wong (Chair of Economics of the Faculty of Business and Economics of the University of Hong Kong, Professor Richard Wong), Professor Sung (Associate Director of the Economic Research Centre, Hong Kong Institute of Asia-Pacific Studies of the Chinese University of Hong Kong, Professor Sung Yun-wing), distinguished speakers, friends, ladies and gentlemen,
Good morning. As we celebrate the 20th anniversary of the HKSAR, it is in fact, a great pleasure to come to this occasion to talk about a subject which is close to Hong Kong people's heart, and also a subject that I believe would have quite a unique story for Hong Kong to tell, which is "Free Trade and Globalisation - The Hong Kong Experience in Retrospect and the Prospects".
Let me begin by stating the obvious: Hong Kong, by all standards, is a free trader. This statement is no surprise to the audience here today, and repeating it might sound like preaching to the converted because you are all practicing this. But if we take a wider look at the world today, the notion of free trade being a positive economic statement does not necessarily draw consensus, globally or even regionally. While textbook economics tells us that trade and economic growth are not necessarily a zero-sum game, the practice of trade in the real world often departs from this simple and straightforward doctrine. Even among trade ministers, they may not necessarily share this very simple notion. For instance, we have recently heard some new words, like the pursuit of fair trade, a term that I used to hear from exploited coffee farmers instead of from global trade leaders, but these are new languages and new terms that we are hearing in the international trade arena. We are also seeing disengagement from hard-negotiated regional trade agreements which were once building blocks of a more open and barrier-lowering trading community internationally. Worse still, we are also seeing signs that might choke the already slow-moving multilateral trading system engine and block some of the essential elements of this system, such as dispute settlement, which could risk grinding the whole machine to a halt.
So, what does Hong Kong stand for by saying that we are a free trader? Are we being stubborn or just lucky to be still practicing free trade? Is Hong Kong being naive in upholding this belief in spite of the adverse geo-economic climate? And after all, being a small economic entity, how are we going to go against the tide of protectionist sentiment? Would our efforts be futile? Is free trade free and is fair trade fair? I have posed a lot of questions because I have the advantage of speaking first and I've seen in the programme that there are a lot of distinguished speakers after me, so I am the one raising questions and they will be the ones giving you a fuller answer.
First and foremost, I am affirming that Hong Kong is a free trader. In this, I mean Hong Kong is a genuine believer and a true practitioner of free and open trade, and we hold on to this both in good times and bad times. We have remained a firm and unyielding tariff-free and open port throughout the many decades of our emergence from a small fishing village to become today's world's biggest trade and logistic hub, and from predominantly an exporter of our own manufacturing of consumer products in the late last century to an overwhelmingly service-oriented economy that captured global leading positions in financial and professional services on top of being a global trader in goods. So that means we weather through the storms, but one thing hasn't changed: we still practise free trade.
Not only do we impose zero tariffs on import and export of goods and services, we also operate a truly level playing field that allows any person or company to register in Hong Kong with no questions asked or no barriers imposed on them due to their nationality, or where they come from, to enjoy Hong Kong being a free port. And additionally, through the CEPA arrangement (the Mainland and Hong Kong Closer Economic Partnership Arrangement), a free trade agreement (FTA) that we entered with Mainland China, we do allow foreign companies, with very accessible means, to enjoy the same privilege or treatment that is being enjoyed by Hong Kong companies, to gain access into the Mainland. Some doors remain half-opened; we are in fact pushing them to open all. We are pushing this not just for Hong Kong companies but also for any companies that are using Hong Kong as their home.
So, Hong Kong's free and open trade practice, what has it done for Hong Kong? Looking back, I think certainly, for Hong Kong's case, there is no argument that trade brings economic prosperity. As at 2016, our total trade receipt stood at HK$7,579 billion, which is over 300 per cent, three times, of our GDP, signifying that the distinctively high proportion of our economy is driven by trade, our national income being brought about by trade. Our economy has also continued to grow during the past two decades, by an average of around 3 per cent per annum, which is a rate higher than our counterparts amongst the developed economies. This year we are doing slightly better, close to 4 per cent, in contrast with about 2 or 2.5 per cent last year. But in general, for the last 10 to 20 years, we have been enjoying a high percentage of growth despite all the challenges. Compared with the trade figures, I think the two may have aligned with each other. And on the other side, the unemployment rate remains at a relatively low percentage - we have just hit the lower mark of 3 per cent in the most recent quarter, which is the lowest in the past 20 years. So looking at Hong Kong's economy as a whole, trade has always been a major element, we enjoy economic growth and a low unemployment rate, so it seems some of the problems raised by a lot of people through globalisation seem to have bypassed Hong Kong.
But I must reiterate that we achieve all these not by picking our trading partners or protecting ourselves from competitors. While we are talking about free trade, we never try to stop one against the other. Every now and then, we are often asked by people on how Hong Kong survives from competition with other cities, particularly those starting with "S" - Shenzhen, Shanghai and Singapore. There are always competitions. As a matter of fact, by being a free port, we cannot pick our trading partners nor can we block our competitors. We remain, being a free port, simply positioning ourselves as a home for international businesses. Quite the contrary, in fact, it is our trading partners who pick Hong Kong. If we look at the list of our major trading partners, the top five in the past 20 years, we might pick up a trend which I observed after I took up this job. Twenty years ago, exactly in 1996, Hong Kong's trade with five major countries or trading ports, in the order of China, 35 per cent; the United States (US), 14 per cent; the European Union (EU), slightly over 10 per cent; and then Japan, followed by ASEAN (Association of Southeast Asian Nations) countries. So it is China, the US, EU and Japan. Last year, the pecking order slightly changed, the proportion has also changed. China has become our major trading partner in a bigger way - 50 per cent, for obvious reasons. What followed China, unfortunately, is not the US or EU: it is ASEAN as a group. They come up to more than one tenth, actually 11 per cent of our trade. They have surpassed the US and EU, both of which have reduced their share by half. The US' share, down to 7 per cent, and also 7 per cent for EU. So, in fact, who trades with Hong Kong has seen certain changes, and what constitutes that change is a very good question for you to discuss. I made my observation: China obviously has come to the world's stage by joining the global trade market. And there are more signs that ASEAN as a group is in fact following the footprint of China by opening up more, and I think that is exactly the reason why we need to strengthen our ties by way of a free trade agreement that was signed recently.
By looking at the global map, I would say that Hong Kong has been lucky to be on this side of the Pacific, where China, Korea, Japan, Taiwan and, essentially, Southeast Asian countries represented by ASEAN have been adopting a more pro-trade, free trade stance. And Hong Kong stood and is still standing to benefit from it. So we can say that Hong Kong is a testimony of free trade and economic development because compared with the figures 20 years ago, Hong Kong was the world's seventh largest trading entity in terms of goods. Today, after 20 years, we remain number seven. During this period, we have seen ASEAN come up; we have also seen China, 20 years ago was the world's 11th largest trading entity and now is number two; and I believe the top position is also open for competition.
So I mentioned that it looks all very rosy and promising by the figures and descriptions that I made, but are we spared from the common problems that a lot of people describe these days due to globalisation, like disparity of income and wealth, worsening of the social divide between generations of breadwinners, deepening of social injustice between the haves and have-nots, growing discontentment given rise from job loss, economic setbacks and displacement of enterprises due to cross-boundary competition? While we enjoy a very good set of figures, I don't think these are the problems that are unseen in this part of the world. But the question is how we are tackling it. Are we putting all these as a result of open trade? Definitely it is not the case in Hong Kong.
When it comes to the impact of globalisation, Hong Kong is not spared but we have chosen to tackle these problems instead of surrendering to them. When we look back, we have put in place in the last 20 years quite a lot of bold and extensive measures with a view to reducing the level of pain given rise from challenges I described in the above. A brief counting of these measures: for instance, we have put in place the Mandatory Provident Fund and we have lately put in the minimum wage. We have also more than doubled our level of old age allowances as well as living allowances for lower income earners. We have launched the Care Fund to cater for those falling outside the usual social security net. We have also built a lot of new job ladders through the promotion of the Qualifications Framework and extensive training and retraining programmes for our working population and young people when they go to the market. All these are extra efforts on top of the increasing commitment on the traditional big ticket public spending items like subsidised housing, social and medical care, and also education.
Trade may not be the penicillin for everything, but I would follow a statement made by our Chief Executive, Mrs Carrie Lam, in the recent APEC (Asia-Pacific Economic Cooperation) CEO Summit in Da Nang, Vietnam. She said, "We should not let free trade to become the scapegoat of the adverse impact of globalisation." I think that is quite a succinct and forceful defence of Hong Kong's position. She added that the various additional social and economic measures we have introduced that I quoted in the above are not just gearing up our society to withstand the gust of the globalisation hurricane, but also preserving our strong belief that we should move forward holding up the pillars that support Hong Kong's open and free trade regime instead of withdrawing from it.
I asked a question, "Is free trade free?" Definitely not, I think we are paying prices and also making economic remedies. But I think the prices are worth paying because it pays dividends in the case of Hong Kong. Free trade dividend for Hong Kong is earned by our insistence in remaining competitive, and this is also confirmed by the various surveys and reports globally. The commonly quoted report is Hong Kong remains the world's freest economy, not by one single think tank, in fact by two, both Cato Institute and Heritage Foundation in the US. Hong Kong remains the world's most competitive city.
In this regard, I would say that those are surveys, economic figures, and also actual experience that support Hong Kong's insistence on that. Looking forward, what would we do? I would say a couple of things. First, Hong Kong must reach out further in terms of building and reinforcing our trade relationship with our partners. And the most recent typical example is the signing of the free trade agreement with ASEAN, thanks for the efforts of our team which spent a few years until last month to conclude and finalise this trade agreement.
A lot of people were saying that in fact Hong Kong is not a good candidate for free trade agreement as there is nothing in our pocket to offer. Why would people sign FTAs with us? I think the answer goes to the 4,000 pages of the (Hong Kong-ASEAN) FTA which does not only include concession on the traditional duties in terms of goods. When you look at the chapters on services, there are at least nine services sectors. These sectors are very familiar to us: professional services, finance, tourism, logistics, etc. Among these services sectors commitments are made by the 10 ASEAN countries, many of which are beyond their commitments to the WTO (World Trade Organization). That, in a way, said a lot as well. While we have not much to offer, in fact we have a lot to receive because for ASEAN as a group, they need Hong Kong's services. They need it also for their benefits because there will be highly complementary arrangement between Hong Kong being the service provider in addition to being a trader and also an investor for this growing and strengthening market.
The second thing I think Hong Kong would do is to continue to support the multilateral trading system. History tells us that since the establishment of the World Trade Organization, the global tariffs have in fact lowered. That means the cost of doing business and the cost of commodities actually dropped. So that is the benefit we all got. But as the low-end goods are being taken, we are seeing the slowing down of this process. And long gone are those days when we went to some of the international meetings where a draft text of a ministerial statement would be already well made and put on the table for us to read and sign on it.
At the most recent APEC meeting, my colleagues and our counterparts spent four consecutive nights without much prospect of agreeing on the ministerial text until the very early hours because of some wordings and textual exchanges. I think that signifies perhaps the slowing down of process even for APEC, which is supposed to be more pro-trade in the regional community.
Having said that, we know there is no perfect world and any trading system, however well organised, would have imperfection and inadequacies that would require early intervention and improvement. Hong Kong subscribed to the idea that we need to strengthen and improve the multilateral trading system. But that said, WTO must be allowed to continue to function and display the strength in resolving trade disputes in accordance with the rules that are carefully negotiated and agreed upon.
As a separate and independent member, the status given to Hong Kong under the Basic Law Article 151, Hong Kong would fully engage ourselves in taking forward issues that are in line with the very spirit of free and open trade. That is the area we enjoy under the Basic Law. Hong Kong can represent itself using the title of Hong Kong, China and also as a separate member of WTO. Our interest may not necessarily tally 100 per cent with that in our country, but I believe Hong Kong would still have a very essential role to play in this multilateral trade organisation.
To repeat my interventions in both APEC and the recent ASEAN meeting, I said on these occasions that "uncertainties remain in various quarters, and if not managed well, could impede trade and undermine the hard earned economic rebound. It is incumbent upon us, i.e. APEC members, to keep up our efforts in spearheading further trade liberalisation incentives to sustain the economies' recovery to being about sustainable, innovative and inclusive growth to our communities."
In the signing ceremony of the Hong Kong-ASEAN FTA, I made the statement that "the significance of the FTA is not limited to building a stronger bilateral economic relationship between Hong Kong and ASEAN. In the face of rising protectionist sentiment in the world, these agreements are a loud and clear vote from all of us, meaning Hong Kong and ASEAN, on free and open trade." So we see this as a milestone, a building block and a new avenue for strengthening the ties not just between Hong Kong and ASEAN, but as a building block for WTO.
To conclude, there are a few points to reiterate. Hong Kong is, of course, a firm believer and practitioner of free trade. We see Hong Kong as a strong testimony on trade and economic growth not being a zero-sum game. Secondly, we do not see trade and globalisation necessarily negate each other. Thirdly, we need to reach out more, using FTAs or investment protection agreements as building blocks and riding on the Belt and Road and greater Bay Area initiatives to bring Hong Kong to a new height. There is no reason why we shouldn't be riding on this major trend as we move ahead. Fourthly, we see Hong Kong still having a very unique role in WTO and APEC, maximising our position as a separate trading entity under the Basic Law and using Hong Kong as the voice for free trade in this international arena. We also need to take the wider community on board to better understand Hong Kong's position because we might become a lone voice with the sentiments that are going regionally and globally.
To conclude, I must read this statement: "Hong Kong will stand firm in our belief that the multilateral trading system under the auspices of WTO provides the most effective safeguard against protectionism and that free trade and globalisation remain a driving force behind economic growth". With this remark, I hope you all will have a great day in the discussion of this very important topic for Hong Kong. Thank you.
Ends/Friday, December 1, 2017
Issued at HKT 20:16
Issued at HKT 20:16
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