EU, Brexit to inspire China’s bid for mega market?

Panoramic view of Hong Kong-Zhuhai-Macau Bridge is seen. (Shutterstock)
Updated 28 June 2019

EU, Brexit to inspire China’s bid for mega market?

HONG KONG: Some in China’s central bank are looking to draw inspiration from the EU and Britain’s relationship with the common market to help shape how China integrates its southern economic powerhouse with Hong Kong and Macau.

The Greater Bay Area already has a combined economy roughly the same size as Australia but the region of 11 major cities is relatively divided — not least because Hong Kong and Macau have their own currencies and legal systems that make integration a difficult task.

The central bank’s branch in Shenzhen, under President Xing Yujing, produced a 295-page report on financial and economic integration in the bay, which suggested building a single market akin to the 28-state EU. The report was penned with China Merchants Bank’s chief economist and published last month.

While the report highlights some of the benefits of European integration, it also acts to underline the challenges facing China in trying to harness the promise of an area that already houses worldscale financial markets, industrial centers and technology sectors.

Market experts say that Hong Kong and Macau would have to give up some autonomy in setting rules and standards, and like Britain, decide on the degree to which they are willing to drop barriers to allow the freer movement of people and capital.

In the report, Xing made no bones about promoting the free movement of people and capital in the bay, and learning from proposals for Britain’s exit from Europe — a proposition previously unexplored by Chinese officials, at least in public.

“European integration has enhanced the welfare of the European people,” the Shenzhen branch of People’s Bank of China told Reuters in a statement.

It spelled out that the suggestions do not represent official policy positions.

The UK has made “plenty of detailed, professional arrangements in ... minimizing Brexit’s impact (while) maintaining integration with European economy and finance,” it added.

The European common market embraced the free movement of labor, which the Greater Bay Area should endorse to “maximize labor market productivity,” Gary Smith, London-based managing director at Barings Investment Institute said.

“That’s the way that the economic benefit is maximized. If it doesn’t happen, then authorities are limiting potential gains,” he said.

While Europe has abolished border controls between 26 countries, there are checkpoints between Hong Kong, Macau and mainland China, under the “One Country, Two Systems” arrangement, which ensures the two cities keep their way of life under Chinese rule.

For a potential solution, Xing pointed to Britain’s idea of a “soft” border with Ireland after Brexit, which aims to continue a free flow of goods and people between the Republic of Ireland and Northern Ireland.

An electronic border could be installed in the bay, whereby businesses pay tariffs online after crossing it, Xing’s report recommended.

She also floated an EU-style “passporting” system for financial services — the ability for those with regulatory approval in one jurisdiction to operate across many in a common area — a policy that could be rolled out across China later.

Yet for financial integration to work, local officials will need to give up some power. “If you had no over-arching authority, you could see Shenzhen and Hong Kong competing on financial markets,” said Smith.

Passporting, for example, requires rules and standards across the area to be aligned, which “inevitably takes away a lot of rule-making autonomy” from local authorities, Mark Simpson, partner at Baker McKenzie in London.

However, the concept of passporting is already embedded to a degree in schemes such as Stock Connect, which allows Hong Kong and mainland-based investors mutual market access, said James Lau, who heads the city’s Financial Services and the Treasury Bureau.

Since mainland China has capital controls, Stock Connect comes with ceilings on trading activity and a closed loop of capital flows — investors must convert gains back into their home currencies.

Xing’s research showed a freer capital regime would be good for long-term growth in the bay, but warned of the “vicious cycle” of large outflows and yuan depreciation pressure if all controls are let loose.

Preserving these checks on capital flows will make it harder to promote the yuan’s usage in the bay — another goal of Xing’s — said Peter Reynolds, Greater China co-head of financial services at consultancy Oliver Wyman.

While Beijing may worry about the free flow of capital, Hong Kong could fret over the free flow of people that a more open system might allow.

“That’s one of the major reasons why the UK is exiting (from the EU). It’s the free flow of people,” said Hong Kong’s Lau.


Dubai counts on pent-up demand for tourism return

Updated 11 July 2020

Dubai counts on pent-up demand for tourism return

DUBAI: After a painful four-month tourism shutdown that ended this week, Dubai is betting pent-up demand will see the industry quickly bounce back, billing itself as a safe destination with the resources to ward off coronavirus.

The emirate, which had more than 16.7 million visitors last year, opened its doors to tourists despite global travel restrictions and the onset of the scorching Gulf summer in the hopes the sector will reboot before high season begins in the last quarter of 2020.

Embarking from Emirates flights, where cabin crew work in gowns and face shields, the first visitors arrived on Tuesday to be greeted by temperature checks and nasal swabs, in a city better known for skyscrapers, luxury resorts and over-the-top attractions.

Tourism chief Helal Al-Marri said that people may still be reluctant to travel right now, but that data shows they are already looking at destinations and preparing to come out of their shells.

“When you look at the indicators, and who is trying to buy travel, 10 weeks ago, six weeks ago and today look extremely different,” he said in an interview.

“People were worried (but) people today are really searching heavily for their next holiday and that is a very positive sign and I see a very strong comeback.”

The crisis crushed Dubai’s goal to push arrivals to 20 million this year and forced flag carrier Emirates, the largest airline in the Middle East, to cut its sprawling network and lay off an undisclosed number of staff.

But Al-Marri, director-general of Dubai’s Department of Tourism and Commerce Marketing, said that unlike the gloom after the 2008 global financial crisis, the downturn is a one-off “shock event.”

“Once we do get to the other side, as we start to talk about next year and later on, we see very much a quick uptick. Because once things normalize, people will go back to travel again,” he said.

The reopening comes as the UAE battles stubbornly high coronavirus infection rates that have climbed to more than 53,500 with 328 deaths.

And as swathes of the world emerge from lockdown, for many travelers their holiday wish lists have shifted from free breakfasts and room upgrades to more pressing issues like hotel sanitation and hospital capacity.

With its advanced medical facilities and infrastructure, Dubai is betting it will be an attractive option for tourists.

“The first thing I’m thinking is — how is the health-care system, do they have it under control? Do I trust the government there?” Al-Marri said. “Yes they expect the airline to have precautionary measures, they expect it at the airport. But are they going to a city where everything from the taxi, to the restaurant, to the mall, to the beach has these measures in place?”

Tourists arriving in Dubai are required to present a negative test result taken within four days of the flight. If not, they can take the test on arrival, but must self-isolate until they receive the all-clear.

While social distancing and face masks are widely enforced, many restaurants and attractions have reopened with business as usual, even if wait staff wear protective gear and menus have been replaced with QR codes.

“When it comes to Dubai, I think it’s really great to see the fun returning to the city. As you’ve seen, everything’s opened up,” Al-Marri said.