Published: 18:39, December 27, 2020 | Updated: 07:03, June 5, 2023
HK's new opportunities, positioning in China's 'dual-circulation' plan
By Li Chen

On December 18, China’s top leadership wrapped up the Central Economic Work Conference with an emphasis on fostering a new “dual-circulation” development paradigm with the domestic circulation as the mainstay while domestic and international circulations mutually reinforce each other. Vigorous efforts will be devoted to deepening supply-side structural reforms and managing the demand side to achieve more sustainable and higher quality economic growth for the country. As the world is undergoing a paradigm shift in the global power structure, the key for Hong Kong to maintain its competitiveness hinges on its ability to seize the chance in time to better integrate itself into the national development of China, which will offer itself a new positioning brimming with opportunities.

2020 is a year beset with global crises and turbulence. Amid the ongoing COVID-19 pandemic and grim international relations, countries around the world have to varying extents experienced a worsening public health threat, economic recession, increasing financial risks and geopolitical volatility. Through decisive pandemic control measures, China quickly neutralized the health threats posed by the coronavirus spread. Its proactive fiscal policy and prudent monetary policy have also counterbalanced its economic downturn and stimulated effective recovery. China’s GDP grew by 0.7 percent year-on-year in the first three quarters of this year, with its growth rate bouncing back to 4.9 percent in the third quarter, making China the only major economy in the world that has achieved positive growth. 

Hong Kong has received unprecedented multiple blows this year, and its society and economy have paid a heavy price. The SAR government forecasts Hong Kong economy will contract by 6.1 percent this year, which is more severe than the impact brought by the Asian financial crisis in 1997 and the global financial crisis in 2008. Short-term aftershocks and recession have also amplified some of the deep-seated structural problems that have troubled Hong Kong over the years. Improving policy effectiveness, forging social consensus and enhancing governance capabilities are not only tasks that Hong Kong needs to urgently work on to get out of the current economic gloom, but they also serve as the foundation for long-term strategic planning to create a new vision for Hong Kong’s future development. 

As mentioned earlier, the Central Economic Work Conference laid emphasis on fostering a new “dual-circulation” development paradigm for China by combining supply-side structural reforms and demand-side management. The keys to implementing this national development strategy are comprehensively deepening market-oriented reforms and opening up, promoting innovation and upgrading China’s industrial structure so as to improve economic circulation and enhance the inter-sectoral linkages and complementarities between different industries.  

For the domestic circulation, China will dedicate efforts to enhancing its innovation capability and the resilience of its indigenous industrial value chains and supply chains. It will focus on breaking through bottlenecks and addressing the weak links in its economic system, as well as expanding domestic demand and building a large unified market to further capitalize on the scale advantages of China’s huge economy. On the side of international circulation, China will further open up its domestic market to actively integrate into the global economy and leverage its domestic circulation to attract global commodities and resources, and in doing so, bolster China’s international collaboration and competitive advantages. Both circulations provide abundant new opportunities for Hong Kong’s development, but would also require Hong Kong to innovate on multiple fronts to explore how to better meet the needs of the country with its unique strengths. 

As a traditional international financial center and trading hub, Hong Kong has always had a unique edge in bridging the Chinese market with global business networks. However, given the disruptive impacts of rapid financial technology innovation and the rising tensions between the US and China, Hong Kong’s financial and trade services sectors will have to adjust their business models to adapt to the new market environment. As the Chinese mainland firms pursue industrial upgrading and internationalization under the new “dual-circulation” paradigm, Hong Kong needs to experiment with both policy innovation and business model innovation to provide more value-added financial, legal and trade services support for the mainland corporate sectors. Hong Kong should also explore how to build new channels for international investors to more effectively participate in China’s “dual-circulation” in a highly uncertain and volatile global geopolitical environment.

Hong Kong has many of Asia’s top research universities, which are well positioned to attract global talent in science and technology research to pursue their career in Hong Kong and the mainland market. As China’s leadership places an increasing emphasis on promoting indigenous innovation, Hong Kong should explore how to encourage its universities, research institutes and talent to more actively join and support the country’s innovation drive, as well as collaborate with the mainland business community to boost the commercialization of university-based scientific research results, capitalizing on the strengths of the mainland markets. 

Land and housing problems have long been the weaknesses of Hong Kong’s traditional model of economic development. Under the new “dual-circulation” paradigm and the Guangdong-Hong Kong-Macao Greater Bay Area development initiative, if talent and resources can flow more freely in the Bay Area with the support of better policy alignment and complementary development, land and housing shortages can potentially be eased considerably in the context of the regional circulation of the Bay Area.

As a Chinese saying goes, “One who does not view the entire outline will not be able to manage a single aspect of a project”. For Hong Kong, the core outline for its future development should be actively integrating into the overall national development, keeping pace with the times, and creatively leveraging its own strengths to meet the development needs of the country. As stressed in the Central Economic Work Conference, “Scientific decision-making and creative responses are the fundamental methods to turn crisis into opportunity”, as long as we accurately discern the shifting trend, respond with scientific means and being adaptive to changes, we will be creating new opportunities while riding out the storm. 

Hong Kong is blessed with the unique advantages of “one country, two systems”, if we can take the initiative to further integrate into the “domestic circulation” and consolidate our role as a “super-connector” bridging the mainland and global markets in the “international circulation”, it will surely open up a new space of growth and generate powerful endogenous strengths to boost the city’s long-term social and economic development.

Li Chen is an assistant professor at the Centre for China Studies and Lau Chor Tak Institute of Global Economics and Finance at the Chinese University of Hong Kong.

The views do not necessarily reflect those of China Daily.