ECFA not a doomsday sign for Hong Kong
Updated: 2010-08-19 08:42
By Chak Wong(HK Edition)
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The world is rarely predictable or certain even if it is often impossible to resist the temptation of making predictions or judgments.
In the case of the Economic Cooperation Framework Agreement (ECFA) signed this June between the mainland and Taiwan, people have come to an almost unwavering perception that deal will be loss-making for Hong Kong.
The perception is primarily grounded on two reasons.
For one thing, opening the door to direct trade across the Straits will cost Hong Kong a lot of money previously earned by serving as the go-between in cross-Straits trade. For another, inbound tourism will suffer because mainland tourists, a driving force behind the vitality of Hong Kong's tourism industry, will turn their back on their old favorite and go to explore a new destination that has become more attractive than ever after being estranged and alienated for so long.
These prejudgments, compelling as they may sound, are not well grounded.
First, let's look closer at the lament that Hong Kong, with the ECFA in place, can no longer profit from re-exports from one side of the Straits to the other.
Hong Kong's total merchandise trade was HK$5161.4 billion in 2009. The same-year re-exports of Taiwan origin and those destined to Taiwan stood at HK$156.3 billion and HK$52.8 billion respectively. Even if we go to the extreme and consider that all these re-exports were going to or coming from the mainland, the little more than HK$200 billion the amounted to accounted for only 4 percent of Hong Kong's total trade in 2009, a figure not significant enough to make a fuss about.
In fact, during the five years to 2008, the annual growth rate of the trades was about 8 to 10 percent. Even in the most dramatic events of losing all the trades with Taiwan, it will be a nuisance instead of a trauma.
Secondly, it is impossible to say for certain what will happen to Hong Kong's tourism industry. The mainland accounted for 60.7 percent of Hong Kong's total tourist arrivals in 2009 and their spending contributed 10 percent of GDP. Losing such a large visitor source would certainly send a chill down our spines. However, thinking that everyone is a potential competitor is fallacious. We call this "fixed pie bias". Instead, as the mainlanders get richer, there will simply be more people interested in traveling and they can easily outnumber the tourists who will divert to Taiwan.
Currently, overseas travel as an industry is still at infancy on the mainland. Instead of worrying about irrelevant issues like the ECFA, we'd better work out measures to draw more mainland and Taiwanese tourists. Simply training waiters and taxi drivers to speak better mandarin can go a long way. We should better regulate tour guides and travel agencies so that incidents of forcing tourists to purchase unnecessarily in shops do not happen again.
A reputation can take years to build, but one day to destroy. Besides, tourists usually like to travel to different destinations.
Last but not least, Hong Kong may very well stand to gain from the ECFA.
Currently, around 40 percent of Taiwan exports are bound to the mainland, which are subject to a tax rate as high as 15 or even 20 percent. The ECFA deal will benefit consumers including those in Hong Kong by making Taiwanese products cheaper in Shenzhen, a beloved destination for Hong Kong consumers, or enabling cheaper products in that a great deal of the goods we import from the mainland have some parts or components made in Taiwan. After all, when the pie is made larger, there is the good chance that everybody will end up pocketing a bigger share.
The author, a former investment banker, is currently the associate director of MBA programs at the Chinese University of Hong Kong. The opinions expressed here are entirely his own.
(HK Edition 08/19/2010 page3)