China’s One Belt, One Road: The Silver Lining Behind US-China Tension?

The trade tension between US and China has put a downward pressure to China’s growth, against the backdrop of interest rates on the rise and slowing global economic growth, Hong Kong will inescapably get affected on its economy, Hong Kong Small and Medium Enterprises Association estimated that around one-third of the Hong Kong manufacturers might not be able to survive through the lingering US-China tension.  One Belt One Road Initiative can shed light on the cloudy outlook, especially for Hong Kong small and medium businesses.

SMEs in nature embrace flexibility and adapt fast in changing market, when growth slows at local economy is typical for SMEs to look for alternative markets for either sales or margin growth. Over the five years since China announced the Initiative, political noises have overshadowed the multibillion-dollar infrastructures that it had brought forwarded in the media, the improvement in infrastructure across the region ranging from standard gauge railway in Kenya to retail outlets in Bangladesh and Forest City Project in Malaysia etc, are important foundations for private businesses to enter the new market.

The Belt connects 70 countries, bridging two of the world’s largest economies; China and Europe. The route will emerge as a major logistics corridor and offers significant opportunities for logistics and strengthening the pivotal role of Hong Kong as a trade hub. The Belt also consists of multiple developing and emerging economic zones, there will be significant call for technological advancement supporting the continuous development of the regions including telecommunications equipment, semiconductors and computer items etc. According to HKTDC, Hong Kong’s electronics industry is the largest merchandise export earner of the territory, accounting for 66.2% of Hong Kong’s total exports in 2017. Sophisticated Hong Kong exporter and re-exporter can take the lead at the market benefiting from the logistics corridor along different economies.

Chinese factories are already moving at the margin to escape not only the trade war inflicted high tariff, but also the increasing labor cost in the region, the belt covers 4.4 billion of population accounted for more than 63% of the global population, an alternative for cost-effective labor and substantial market for retailer.

Despite the opportunities, uncertainties remain, legal and political risks, tax regulations and appropriate financing arrangement could be challenging. It is important for Hong Kong Government to work closely with local SMEs to get prepared for the new risks and opportunities and establish suitable measures to support the needs.

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