I went to Hong Kong and there I met China, here’s what I learnt……….

I went to Hong Kong and there I met China, here’s what I learnt……….

This is a record of my recent visit to Hong Kong and being my first, it took me completely by surprise. I couldn’t help but ask questions of Hong Kong and its place within China. This directly led to China, its role in Hong Kong, its place in the world; its strategic vision and eventual impact on our futures. Below is a transcript of my conversations and observations over the week spent learning about China and it’s perception in Hong Kong.
- Bharat Pratap

Being on the road it only seems appropriate to start with ‘One Belt One Road’ and how Hong Kong has a strategic role in this new period of China’s development.

This topic demonstrates how China has been dealing with taking concrete steps in this direction with championing the setting up of the AIIB (Asian Infrastructure Investment Bank), the Maritime Silk Road Bank, the Silk Road Fund as well as the other funds including the China Andean cooperation fund etc. What is surprising is that all these happened in the span of 1-2 years. So the speed is tremendous this time.

The focus now needs to be on sharing of 4 components of the China strategy which are essential to understand:
1. OBOR or ‘One Belt One initiative’– Perspective from someone who is intimately familiar with the region
2. Hong Kong’s growth – Hong Kong is the ‘super connector’ in the OBOR project as well as a fulcrum in the Pearl River Delta project.
3. What does all this mean for the citizens and professionals in the region and what opportunities this will unlock
4. Clarify how all of the above tie a grand strategic vision into an executable and realistic strategy for progress and the benefits which will accrue from this.

The family of my main commentator has been out of China for 3 generations. Not too long considering the Chinese immigrant communities and yet are linked into the Chinese way of life. He has returned, embraced the new China and in the process has not only become fabulously rich but also extremely influential in the region. Today they come in numbers to China and Indo-China to follow the dream of OBOR

1. One Belt One Road – One Road which is a land based contact from Eastern Europe- Central Asia and China, One Belt linking all of the China’s economic interests and following the old silk road.
The coverage area of the initiative is primarily Asia and Europe. However, Oceania is also included as well as East Africa and this is known as the Silk Road Economic Belt
When Chinese President Xi Jinping visited Central Asia and Southeast Asia in September and October of 2013; he raised the initiative of jointly building the Silk Road Economic Belt and the 21st-Century Maritime Silk Road. Essentially, the 'belt' includes countries situated on the original Silk Road through Central Asia, West Asia, the Middle East, and Europe. The initiative calls for the integration of the region into a cohesive economic area through building infrastructure, increasing cultural exchanges, and broadening trade. Apart from this zone, which is largely analogous to the historical Silk Road, another area that is said to be included in the extension of this 'belt' is South Asia and Southeast Asia. Many of the countries that are part of this 'belt' are also members of the China-led Asian Infrastructure Investment Bank (AIIB).

Maritime Silk Road
The Maritime Silk Road, also known as the "21st Century Maritime Silk Route Economic Belt" is a complementary initiative aimed at investing and fostering collaboration in Southeast Asia, Oceania, and North Africa, through several contiguous bodies of water – the South China Sea, the South Pacific Ocean, and the wider Indian Ocean area.
The Maritime Silk Road initiative was first proposed by Xi Jinping during a speech to the Indonesian Parliament in October 2013. Like its sister initiative the Silk Road Economic Belt, most countries in this area have joined the China-led Asian Infrastructure Investment Bank. This is mainly about the 10 ASEAN countries, the 5 countries bordering China on the north including Myanmar, Thailand, Vietnam, Laos and Cambodia and the 5 other countries separated by the South China Sea, viz. Philippines, Burma, Indonesia, Malaysia and Singapore.
East Africa: This region of Africa (In particular Kenya) will form part of the Maritime Silk Road after improvement of local ports and construction of a modern standard-gauge rail link between Nairobi and Mombasa.
For One Belt is the Eurasia focused land based continental road and the One Road is truly South-East Asia based economic and strategic maritime corridor.
Of the countries part of the project, the key will be ‘Hong Kong for doing deals’, within this larger market place which is very dynamic.

In the olden days the Silk Road was glorious and fueled an economic boom and now we see an attempt to resurrect the same by One Belt. This is a historic document which is more than just cultural and is not only economic and cultural but also geo-political as well. This is because all of the world including the US are looking at Asia. The US is saying that we should have 60% of our military might poised in Asia and we can’t blame them because Asia is 60% of the world’s GDP or even more.

Hong Kong is important since it is located in the middle of this region where 60% of the World’s GDP is situated and we mean within 5 hours of flight time to anywhere. In addition to half of the GDP share over half of the World’s population is also situated here.

One Belt is important because of geo-political reasons as well and because of resources and Europe. But One Road is equally important because of all the economic activity here and because of South China Sea.

The South China Sea is absolutely critical because over 90% of China’s energy is imported and this is via the South China Sea, hence this is the throat of China. For China to be safe they have no choice to implement the One Road in addition to One Belt and reach out and become a stakeholder and that is the thinking of Beijing on One Belt One Road.

In a way this a response to Obama’s ‘Pivot to Asia‘ and response to TPP, the Trans-Pacific partnership involving 12 countries and excluding China. This is the larger picture of the so call G2 dynamics. US – China balancing the need for China to develop more and the US is trying to keep its own traditional territory in terms of mega interest in general.

In this context it is even more complicated now, and with the many strategic interests at play; this is clear in the South China Sea where it’s not just the US but also through its allies like Japan, Philippines and Korea; then in the next tier we see involvement of Vietnam, India and so on.

You have this grouping and China which is leading to issues in the South China Sea and then you have the East China Sea with Japan surrounding the small islands which are known as the Senkaku islands in Japan and the Diaoyu islands in China. This is another large subject which has was a fallout of the post WWII legacy and China was too tired at that time and too preoccupied with domestic matters at the time and Diaoyu was handed by the US to Japan for administration purposes and not sovereign title.

In any case the US was not the owner of the islands and so to speak had no rights in any case. Therefore the East China Sea is also a very important area for co-operation and understanding and this year is strategic since it marks the 70th year anniversary of Chinese victory over Japan and China highlighted this by organizing a massive parade in Beijing which underlined its robust military capabilities.

On Japan’s side there has been the rewriting of the peace oriented constitution into something more proactive and reaching out and so you have all these dynamics happening, plus all the economic problems making for a very dynamic and exciting environment for geopolitics. This is the context of One Belt One Road in general

Then we have China’s aspiration to become at least a regional power on economic development and have scale. This means that China wants to be a 2 ocean power, in the Pacific Ocean and in the Indian Ocean.

In order to be a Pacific Ocean power you need to have South China Sea to reach out, and in that sense Vietnam is strategic and if you touch Vietnam, it’s touching the nerve of China since it is on the South China Sea.

The other strategic country is Myanmar; since Myanmar is the only way for China to get to the Indian Ocean and there is a pipeline going from the Yunnan province all the way through Myanmar to the Indian Ocean. In that sense Myanmar is strategic since there is no way that China can be a power in the Indian Ocean.

Thailand is also strategic since if you go through Thailand you can cut 1/3 of the shipping as opposed to going through Singapore. So it is a complicated matter as Singapore is an ally but when it comes to this, it becomes a very big enemy. This makes for an extremely dynamic environment where many things are happening.

Meanwhile you have NATO expanding in Russia’s backyard, and to counter that there is the counterbalancing organization called the Shanghai Cooperation Organization (SCO) led by Russia and China together and now with India and Pakistan joining, next year there will be 8 countries instead of 6.

In that context we have had a global alpha-male called the US now being challenged by a new alpha-male called China which is trying to court this beautiful maiden called the South China Sea. This analogy may not be entirely accurate since we have a whole number of other issues as well such as Iran, Turkey and there are the traditional issues with Kurds and the leadership issues in the Islamic world.

This is important because Islam is the fastest growing religion now and before we know it half of the European population will be Islamic and before we know it half of the US population will speak Spanish, and half of the Asian will know Chinese.

These are 3 halves are happening and they are growing very rapidly. Also how to manage Turkey in its progress and how to manage leadership issues in the Islamic world, these are all issues faced by China. In this context it is really the most interesting, exciting and dangerous time which as can find in recent history.

This year being the 70th anniversary of the victory of China over Japan should serve as a timely reminder to all of us on how important and how precious peace is not only to business but also to our family’s safety, and also to the next generation who may be able to live deserved lives like people do in Switzerland.
Some critics feel that One Belt One Road is a counterbalancing strategy of China against the US; but for China this is a must, not just because of the US but also due to the technical overcapacity in the domestic market.

China has been the world’s factory, however we just can’t say that tomorrow we don’t want any emissions and want a blue sky over Beijing; but it means that environmental solutions will needed, and pollution will have to come down and relocating the polluting factories to places like Vietnam is no longer easy due to the presence of NGOs.

This is why China needs to have One Belt One Road to export excess capacity, and China has done wonders in terms of Information Technology developments and research and this should be enjoyed by the rest of the world as well, and not just restricted to China. China also has a very high quality army of manpower which is highly skilled and cost effective compared to the Japanese and Germans and what is needed is to win contracts and establish connections and this is where One Belt One Road will play a vital role.

Trade happens, and just on tourism alone we must understand that 70% of the global tourism trade is between Europe and Asia and not America; so the world’s tourism is Eurasian. You have all these reasons for China to secure more communication with countries on One Belt One Road.

This (OBOR) initiative covers over 40 countries and over 3 billion people. That means a big market and this is critical for China and the rest of the region as well. The other reason is to secure a peaceful environment with neighbors and what better way to achieve this than to have trade and investment on a multilateral basis, when nations are dependent on each other and have cross border economic interests.

The other issue is security with factions and terrorist groups which are aiming to operate across the country and China would need co-operation across the country so political reforms can be done peacefully rather than using extreme measures and this is in the interests of China and larger interests of the world.

Therefore One Belt One Road will be implemented and we can see that China's determination on that project. We can see how China is looking to deal with South-East Asia and has been working on bringing South Asia and Eurasia into a common region with mutual economic interests.

This also means that the upcoming visit to the USA by president Xi Jinping will be extremely important. Some of you may have observed that now is the time when almost every country in the region of the so call conflict zones is preparing for war.

This is unseen to the masses and we don’t read about it. Taking a look at China. It needs to be able to compete with the USA and China’s strategic oil reserves are at an all-time high and this is key. The food reserves in China are now at their highest wartime reserves of 3 years. Everything is in place if needed.

America is the same and Chuck Hagel on becoming the new Defense Secretary made the statement’ we need to bring the most advanced weapons systems to the Asia-Pacific.’ So instead of sending the best people, the best diplomats and the best ambassadors to the Asia-Pacific; and technology transfer for cleaning up the environment and it seems that according to US policy it’s more weapons systems that the region needs.

The Japanese are re-writing the post WWII pacifist constitution and the whole region are buying submarines. This is the most active period in human history in terms of strategic submarine build up. Before we know it, this will be the stage where we will witness the highest and fastest buildup of naval force by China. Every week a new warship launches into the sea.

With China keeping a balance with the US expansion in the region the result is a huge waste of time and resources as opposed to development of people to people and business to business connections.

Every country in the region if it fails is not because of other reasons including democracy, it would be due to a climate of instability. For example, Myanmar was very good until recently till they got the religious, ethnic, border and political conflicts rising again. Thailand was very good till it got the yellow shirts and red shirts and now royal succession as a potential issue.

Everywhere stability is the condition for development and this must be achieved with governments working together.

Hopefully the One Belt One Road initiative will make the situation more transparent as to the strategic intent so that both side (USA & China) and lower the possibility of miscalculation and misjudgment and this is very important in strategic studies.

If we look at the example of when the Americans entered the Korean conflict, US technocrats didn’t expect the PLA to be so determined and hungry even without weaponry and support. First they joined the war and then they fought it, this was also a strategic miscalculation of judgement. Then there was the Vietnam war where the situation was the same.

Hopefully One Belt One Road would be a set of mechanisms including the internationalization of the Renminbi so that both camps know more about who they are and what they do and what the core interest issues are. Hence when they negotiate, instead of talking about conditions, the USA & China should be talking about their core interests; and USS needs to see that the core interest of China is to ensure a stable internal and external environment and ensure that stability aligns with their economic interests. That’s the strategic objective as far as China goes.

One Belt One Road is a strategic national policy and will be a key topic for the next 20-30 years. The reasons why it is here to stay are:
(a) It is a must for the survival and prosperity of China
(b) It is a hallmark of the Xi Jinping presidency – he will in the post of the president for at least next 10 years and even after that the next incumbent will carry on in that direction. Hence the better we understand the OBOR the more we can understand the causes and identify the exceptional business opportunity.

The role of Hong Kong in China’s strategic growth model:
Hong Kong will play a prominent role in the One Belt One Road policy due to several reasons:
- Hong Kong actually is part of China and also at the same time has independent systems in terms of customs, currency, politics, finance and law. Therefore it is key to play the role of a connector or plug between China and the world.
- In 2015 Hong Kong became the number 1 IPO center in the world again. It has over 1000 funds working here and is clearly a leading global asset management center.
- There is no estate or inheritance tax in Hong Kong and therefore rich families prefer having it as a jurisdiction for their family offices.
- As part of the One Belt One Road, Hong Kong should have Islamic Finance capabilities as well.
- Asian Infrastructure Investment Bank (AIIB) offices should be in Hong Kong as China is ready to allocate 100 billion Renminbi to the partner countries.
- Hong Kong will be an excellent place to sign and execute agreements such as PPP for wastewater treatment and hospitals etc. which would benefit all countries which are part of the One Belt One Road initiative.
- Both sovereigns and private investor protection will be assured in Hong Kong via the common law and there is the will and the infrastructure. There are legal systems to protect IP as well as real assets and they are ideal.
- Challenges: Hong Kong has a huge facilitator role for the One Belt One Road process. How it will be done is a big topic in Hong Kong as they have their major challenge of political reform and we have observed occupy Central and so on. Amazingly both the establishment and the opposition have not had enough EQ to sit down and resolve this matter. There has also been no credible mediator which both sides trust and respect and is willing to help them resolve this matter. This is a logjam which needs to be resolved. This will challenge the leadership of the governing party. As an example one of the persons I spoke with who is a significant Chinese businessman said how he has been involved extensively in community work, but the moment he thought of taking on a political role his wife forbid him from it due to the reality of Hong Kong politics being underlined by cruelty, ruthlessness, recklessness and danger. It takes a man willing to sacrifice himself. Also Hong Kong is not a place where you have the threat of revolution as there is no issue of hunger or shelter or personal safety. Hong Kong does not need a revolution, it needs political reform which should done via peaceful means. Even the appointment of the Hong Kong University deputy Vice Chancellor is a matter rife with politics. This is the challenge and opportunity for Hong Kong. It will take people of the city who have time and the ability to step in and not stay part of the silent majority. There is a need to work out a resolution to enhance the current system that is reasonable and fair. Hong Kong people are very smart and are industrious; even though the mindset may be material, they have been known to be giving in social causes. Hong Kong isn’t the city you come to and fall in love with, however after a couple of years the appreciation of how everything fits together becomes clear.

Five more important features about Hong Kong:
(i) Hong Kong has a wonderful capital market and should be the international financial Centre for One Belt One Road which should welcome Russian money, welcome Central Asian money and skilled professionals to live and work here. As a hub Hong Kong has the law and system where investors can be protected.
(ii) Hong Kong is a wonderful media center. Information is open and travels fast. This must be made use of more for people to people diplomacy and get more of countries to set up their international media hub here. In Hong Kong the number 1 interest group is American interest, Japanese are second followed by the European Union at three, Singapore at four, UK at five and Korea at six in that order. In the future Hong Kong would need to have more people from the rest of Asia and not just the traditional stakeholders. Hong Kong needs to look into its immigration policy to let in the best who want to be there. With people being the key resource, it’s important to ensure that the best talent can be attracted to and retained within Hong Kong.
(iii) It is critical that Hong Kong become ‘the’ international financial center within OBOR with working institutions and offices such as AIIB, Silk Road Fund, Silk Road Bank as travelling to Hong Kong is easier than travelling to China and for Chinese people it is also easier to travel to HK than to go elsewhere. Once you are in HK you are in China. In the next or so the high speed rail connecting Hong Kong to China will enable many more people to travel into China and vice versa.
(iv) HK is in the middle of the most exciting and valuable mega city in the world called the Pearl River Delta which will be interlinked and integrated to groups of cities with lots of talent in the new economy if done right. This will be a place of 100 million talented people and when you see HK from space it should be the brightest spot on earth. It has all the ingredients to be the hub for One Belt One Road. As a special administrative region of China it has its own system
(v) Hong Kong should be thinking of its home, the people, the young, old and the sick. It must spend more on building of its port capabilities. Hong Kong needs to partner more on the technology front with countries such as Israel and other countries and to secure peace with Japan and the rest so they can work together. The best assurance for peace in the Chinese mind is preparation for war, but not over preparation.

In September we expect an announcement by the Chinese authorities announcing the 13th 5-year plan by China since 1949. At first these plans were a hallmark of a planning economy, however now they are frameworks for a mixed economy along the broad growth directions of the vision of the Beijing leadership.

The 5 connects reiterated by China as below:

(a) Transport system – high speed rail, ports and airports etc.
(b) Currency – The Renminbi internationalization
(c) People – People to people, heart to heart (politics, HK-China integration etc.)
(d) Investment (e) Trade

The best place to make the 5 connects is HK and it seems to be well poised to become the center of the nebulous mass which will eventually form the Pearl River Delta region which in itself will be a heavyweight amongst the economic regions on the globe and continue to draw in resources at an increasing pace in the decades ahead.

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