In his budget speech, Financial Secretary, Paul Chan saw immense economic opportunities and benefits for Hong Kong to join the Regional Comprehensive Economic Partnership (RCEP) after its ratification and implementation in order to help local businesses and investors open up new markets and foster long-term economic development for Hong Kong. This is also supported by Chief Executive Carrie Lam who considers that Hong Kong is well placed for participation.
What are the expectations and where are the opportunities for Hong Kong businesses?
The RCEP, being the largest trade pact in the world and signed by 15 Asia-Pacific nations, covers a market of 2.2 billion people (nearly 30 percent of the world’s population) with a combined gross domestic product (GDP) of US$26.2 trillion (almost 30 percent of global GDP), and accounts for about 28 percent of global trade. The agreement comprises Australia, China, Japan, South Korea and New Zealand plus the 10 ASEAN members – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. It aims to establish a modern, comprehensive, and mutually beneficial agreement by creating a liberal, inclusive and multilateral regional market for the free trade of goods and services and also targets eliminating tariffs on over 90 percent of products traded in the coming two decades.
Engaging developed, developing and least-developed nations with tailor-made provisions for flexible and differential treatments, the RCEP demonstrates its signatories’ commitment to rule-based free trade and standardized customs practices and investment potentials with special emphasis on economic cooperation, intellectual property, market liberalization, dispute resolution, supply chain realignment, small- and medium-sized enterprises (SMEs), and financial and tertiary services. Given limitations on tariff reduction and other unsolved economic issues, not all countries will benefit equally by joining the RCEP. Nevertheless, it is estimated that the pact could boost global GDP by US$186 billion annually.
Opportunities for Hong Kong
Hong Kong already has free trade agreements with 13 signatories of the RCEP covering many aspects of trading in goods and services, investment opportunities, intellectual property, dispute settlement and economic cooperation. Joining the RCEP will therefore be one step closer to economic partnership with the Asia-Pacific markets, especially the new markets of Japan and South Korea.
With a deep pool of professional services, Hong Kong is also well placed to participate in the RCEP, with its competitive edge of having seasoned financial and professional expertise, excellent geographical location and free flow of capital. Most importantly, the Ministry of Commerce in Mainland China has announced its support for Hong Kong to join the RCEP.
Continuing to support the Mainland’s development
With China as the largest economy in the RCEP, it is likely there will be rising demand for renminbi (RMB) usage and increasing cross-border RMB settlements and investments among member nations. Hong Kong, as a leading offshore RMB financial and foreign exchange market, could play a significant role in providing expedient monetary and financial services for RCEP members to meet their demands for currency exchange and risk management.
The internationalization of RMB will further be driven by China re-positioning itself as a high-value production country and progressively moving to being a consumption-driven economy. This will increase trade in goods and services and other value added activities, which will re-align supply chains, cargo logistics and infrastructure, market access, investment opportunities and growth potentials for SMEs in the RCEP economies.
The RCEP will also set new rules of origin for goods and eligibility for preferential treatment. There could in the future be a need for sophisticated professional expertise and experience to help with matters including supply chain logistics, intellectual property protection and enforcement, insurance and reinsurance facilities, audit, taxation and legal consultancy, asset and data management, merger and acquisition, e-commerce, digital currency transactions, credit rating, agency services, privacy and consumer rights, electronic authentication, etc.
Nevertheless, Hong Kong enterprises should evaluate these opportunities and adjust their “expectations” to cater for the needs of individual members, which are developing at different speeds. It will likely take time for different members to make the necessary adjustments and adapt to new trade protocols before all the benefits are visible. While Hong Kong enterprises can get involved in the journey by helping with standard compliance, infrastructure development, and sharing professional skills, knowledge and experiences, they should be agile and with an open mindset to embrace individual differences so that all the economies can achieve sustainable growth, including Hong Kong itself.
Hong Kong’s professionals should prepare for the challenges and opportunities offered by the RCEP.