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Hong Kong can reap the rewards of the world’s biggest free-trade pact even as an outsider, analysts say

Hong Kong can reap the rewards of the world’s biggest free-trade pact even as an outsider, analysts say

  • The 15-nation agreement has the potential to help Hong Kong offset economic hammering from trade war and pandemic, according to business leaders, economists
  • Some experts feel that even though Hong Kong is not yet an RCEP member, the city can still be benefitted by its potential tax benefits and smoother customs arrangements
Economists believe Hong Kong stands to gain from stronger regional cooperation and more unified trade rules. Photo: AFP
The world’s biggest free-trade pact, signed on the weekend by China and 14 other Asia-Pacific nations, could help Hong Kong minimize the damage wrought on its economy by the souring of Washington-Beijing relations and the coronavirus pandemic , according to city analysts.

Business leaders and economists welcomed the deal for its potential to support Hong Kong’s economic recovery even with the city not among the signatories while expressing hope the financial hub would soon become a member to fully reap the benefits, which include boosting trade with the likes of Japan and South Korea.

In a major coup for China, 15 countries on Sunday signed the Regional Comprehensive Economic Partnership (RCEP), an agreement

excluding the United States and extending Beijing’s economic sway in the region.

The founding nations include Japan, South Korea, Australia, New Zealand and the 10 members of the Association of Southeast Asian Nations (Asean).

Hong Kong is not a member economy of the RCEP, but has expressed an interest in joining the network. Photo: Winson Wong
Hong Kong is not a member economy of the RCEP but has expressed an interest in joining the network. Photo: Winson Wong

In December last year, commerce undersecretary Bernard Chan Pak-li said the government had been “seeking Hong Kong’s accession to RCEP as its first new member economy”.

Among Hong Kong’s free-trade agreements currently in force are those with the Asian bloc and Australia. The city has signed similar deals with mainland China and New Zealand but has yet to reach such agreements with Japan and South Korea.
Most SMEs have their manufacturing bases in China, so when China signs the agreement with other countries, it will be easier to export goods to these countries Michael Hui, vice-president, Hong Kong Chinese Importers’ and Exporters’ Association
The Hong Kong General Chamber of Commerce’s chief executive, George Leung Siu-kay, said there would be advantages for Hong Kong whether it was a member or not.
“However, the RCEP will put Hong Kong in a better direction forward, with growing trade and bringing more business to the city.”
China’s marginal RCEP gains will not offset trade war impact on economy
17 Nov 2020

Lawmaker Felix Chung Kwok-pan, leader of the pro-business Liberal Party, said Hong Kong could extract gains from the pact even before becoming a member, in terms of logistics, trade and supply chains.

“There will be more trade between China and all the other countries and with China, which is one of Hong Kong’s largest trading partners,” he said.

“It would be better if Hong Kong is a real member instead … Japan and South Korea are two countries that Hongkongers love to visit, conduct trades and do business with, so it will be better if Hong Kong can be free-trade partners too.”

The RCEP is now the world’s largest trade bloc covering about 2.2 billion people and accounting for roughly a third of global economic output.

It is hoped that the agreement will result in a liberalisation of trade and tariff cuts across the Asia-Pacific region, the benefits of which will then flow to Hong Kong.

But business leaders and experts are split on whether that trickle-down effect will materialise.
Chinese Premier Li Keqiang (left) attends the signing ceremony of the RCEP agreement at the Great Hall of the People in Beijing. Photo: Xinhua
Chinese Premier Li Keqiang (left) attends the signing ceremony of the RCEP agreement at the Great Hall of the People in Beijing. Photo: Xinhua

Wenda Ma, an assistant principal economist at the Hong Kong Trade Development Council, believed that Hong Kong stood to gain from stronger regional cooperation and more unified trade rules.

She said that following the agreement, city businesses trading with multiple Asean countries would only need to comply with one set of rules and procedures. “Hong Kong companies may benefit from when they try to optimise supply chains in the region.”

Small and medium enterprises (SMEs) that have been buckling under the pandemic and associated travel bans have also been supportive of the wide-ranging trade deal.

Michael Hui Wah-kit, vice-president of the Hong Kong Chinese Importers’ and Exporters’ Association, said: “Most SMEs have their manufacturing bases in China, so when China signs the agreement with other countries, it will be easier to export goods to these countries.”

Hong Kong can benefit because of its position as a financial centre and being one of the important centres for servicesSufian Jusoh, fellow, World Trade Institute

Hui, who is also chairman of Hong Kong’s Small and Medium Enterprises Committee, added that even though Hong Kong was not yet an RCEP member, the city could still take advantage of potential tax benefits and smoother customs arrangements emanating from the trade pact.

“With the US and Europe markets not doing very well, we do need to explore other territories in order to retain our business,” he said.

Terence Chong Tai-leung, an economist from Chinese University, agreed the RCEP offered greater access to Asean markets, but had doubts over what advantages it could offer specifically to Hong Kong, even as a member.

“The RCEP will be more beneficial to export-reliant countries, whereas Hong Kong is more on re-exports, and would only benefit with our re-exports to China, which then deals with Asean, a fast-growing bloc that will be most important in the coming 10 to 20 years,” said Chong.

Asean, RCEP trade partners unlikely beneficiaries from US-China trade war: economist
17 Feb 2020

In 2019, the value of goods re-exported to and from the mainland was HK$3.5 trillion, accounting for roughly 40 per cent of total trade merchandise that year.

The Post has reached out to the Hong Kong government for comment.

US President Donald Trump launched this summer a barrage of sanctions against Chinese and Hong Kong officials and stopped recognising the financial hub as a customs territory separate from mainland China in response to a perceived erosion of freedoms, including from the

national security law

.The city was also forced to abide by Washington’s new rules to label its exports as “Made in China”, even though Hong Kong is regarded as a separate trade entity.

The Hong Kong government has since filed to open proceedings under the World Trade Organization’s dispute procedures.

Sufian Jusoh, World Trade Institute fellow, agreed that Hong Kong could request to join the RCEP deal to consolidate the free-trade agreement it has with Asean that took effect last year.

“Hong Kong can benefit because of its position as a financial centre and being one of the important centres for services. With RCEP there will be a higher level of liberalisation of services and investment,” he said.

Julien Chaisse, a trade law professor at City University, also agreed that Hong Kong would “indirectly benefit” from the new trade deal.

He said mid-sized countries most active in global value chains such as Malaysia, Thailand, Vietnam, Korea and Brunei were poised to enjoy the largest gains, while economies already among the world‘s most open, including Singapore and New Zealand, would see the smallest return.

Hong Kong stock exchange aims to modernise IPO process, slashing times for debutants to list as it strives to protect global crown

  • The proposed new electronic platform would shorten the gap between an IPO being priced and its trading debut from five business days to just one day
  • The proposal by the stock exchange operator would improve market efficiency and reduce risks, according to analysts.

The proposal from HKEX would cut the waiting time between the pricing of an IPO and the trading debut of the shares. Photo: ReutersThe proposal from HKEX would cut the waiting time between the pricing of an IPO and the trading debut of the shares. Photo: Reuters
The proposal from HKEX would cut the waiting time between the pricing of an IPO and the trading debut of the shares. Photo: Reuters

Hong Kong Exchanges and Clearing (HKEX) is proposing a revamp that would drastically speed up the process of initial public offerings, helping the city maintain its edge as a hub for stock market listings.

The modernisation would involve replacing time-consuming paper subscriptions with an electronic system that would cut the so-called IPO settlement process by 80 per cent and bring the city’s stock market in line with its counterparts in the US and Europe.

The proposal would digitalise the IPO process with a new platform called Fast Interface for New Issuance (FINI), according to a statement released by HKEX, the bourse operator, on Monday. If it gets the go-ahead as scheduled in the second quarter of 2022, it will allow companies, regulators, bankers and brokers to interact when handling the entire settlement process.

It would shorten the settlement process – the gap between the pricing of an IPO and its trading date – from five business days to just one day.

HKEX is collecting views on the idea until January 15, it said in the statement.
HKEX

to boost its IPO credentials, after it

lost the jumbo IPO of Ant Group

earlier this month. The bourse, which has been the largest IPO market worldwide seven times in the past 11 years, introduced sweeping

listing reforms

in 2018, which have attracted more tech giants with multiple classes of voting rights, as well as pre-profit biotech firms.

However, the logistics of the IPO process has not changed in more than two decades.

Charles Li Xiaojia, chief executive of HKEX, proposes introducing a new IPO settlement platform in 2022. Photo: Xiaomei Chen
Charles Li Xiaojia, chief executive of HKEX, proposes introducing a new IPO settlement platform in 2022. Photo: Xiaomei Chen

“For the last decade, Hong Kong has been the IPO capital of the world. It is vitally important that we continue to protect our global leadership position in the next decade and beyond by innovating and advancing our market infrastructure,” said Charles Li Xiaojia, the outgoing chief executive of HKEX, who will step down next month.

“FINI will secure our continued attractiveness and competitiveness as the global listing market of choice and we look forward to working with the Hong Kong IPO community on this exciting initiative,” he said in Monday’s statement.

An increasing number of US-listed technology firms are likely to follow in the footsteps of Alibaba Group Holding to launch a secondary listing in Hong Kong, making it even more important for HKEX to shorten the IPO settlement period, Li said during a teleconference on Monday. Alibaba owns the Post.

“After this reform goes ahead, Hong Kong will leapfrog all other exchanges globally to have the shortest IPO settlement cycle,” Li said. While he did not disclose how much users will need to pay for using this platform, he said, “people can expect not to spend too much money”.

The advantage of the new platform is that retail investors can pay after the allotment, instead of having to pay in full in advance for the shares they want. Their brokers would only need to pay a 10 percent deposit at the time of subscription under the proposal.

At present, many retail investors who subscribe to Hong Kong listings prefer to apply by post with an accompanying cheque, even though online services are available. The process is labour intensive, requiring staff to handle physical forms, cheques, oversee refunds and distribute share certificates.

The manual processing of retail investors’ subscriptions is one reason a typical flotation takes five days to settle in Hong Kong, a system known as “T+5”, as shares in the city can only start trading five days after the subscription period ends.

The proposed reform would allow Hong Kong to catch up with many markets in Britain, the US, and continental Europe that enable trading within one day of the close of subscription, a process known as “T+1”.

The proposed FINI would handle everything from regulators’ approval and investors’ subscriptions to pricing and share allotment – all the steps preceding a newly listed company being ready to “strike the gong” to mark its trading debut on the exchange.

“The new move is welcomed by listed companies as it will help speed up the IPO process,” said Mike Wong Ming-wai, chief executive of the Chamber of Hong Kong Listed Companies.

However, Chan of the Institute of Securities Dealers sounded a word of warning.

“It may hurt many of the stockbrokers as it will cut down the interest income from IPO loans after shortening the settlement time,” he said.

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