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Greater Chinese Economic Area

大 中 華. Greater Chinese Economic Area. Its Impact & The Role of Hong Kong. Presented By: Marianne Chow China & Globalization, Winter 2006. Agenda. Research Thesis Background on Emergence of CEA Triggering Factors & Unique Characteristics Impact of Political & Economic Events

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Greater Chinese Economic Area

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  1. 大 中 華 Greater Chinese Economic Area Its Impact & The Role of Hong Kong Presented By: Marianne Chow China & Globalization, Winter 2006

  2. Agenda • Research Thesis • Background on Emergence of CEA • Triggering Factors & Unique Characteristics • Impact of Political & Economic Events • What is Hong Kong’s Future? • Recommendations • Conclusion

  3. Research Thesis • Hong Kong should continue to emphasize its comparative advantages and increase international recognition. Yet, it should also use WTO as a forum to negotiate “closer economic partnership arrangement” with Taiwan. • My hypothesis is that it would: • Remove trade barriers to ensure more efficient trade within CEA • Secure Hong Kong’s position as intermediary • Take advantage of WTO standardized rules and dispute resolution mechanism

  4. Background on Emergence of CEA

  5. Definition of GCEA • “[China’s] de facto economic integration with the economics of Hong Kong and Taiwan.” (OECD) • “Economically, Greater China involves the expanding commercial interactions among mainland China, Taiwan, and Hong Kong.” (Harding) • Other Terms • “Chinese Productivity Triangle • “South China Economic Community” • “Chinese Economic Circle” • “Chinese Common Market”

  6. Political Component • “Greater Chinese” • China-Taiwan • One Country, Two Governments • China: Weakening of resolve towards reunification • Taiwan: Focuses too much on economics rather than political legitimacy • China-Hong Kong: • One Country, Two Systems

  7. Economic Component • Taiwan External Merchandise Trade (2004) WTO Statistics Database (2004)

  8. Economic Component (Cont) • China External Merchandise Trade (2004) WTO Statistics Database (2004)

  9. Economic Component (Cont) • Hong Kong External Merchandise Trade (2004) WTO Statistics Database (2004)

  10. Geographical Component • “Economic Area” • Economic Integration • Institutional • Regionalization • Informal

  11. Global Impact of CEA • Contributing Substantial World Market Growth • More than 20% of world’s population • 2nd largest economies in the world • Largest foreign exchange reserves • Expansion of trade in still developing country • Integration without threatening loss of ethnic or cultural identity • Form of cooperation between/among politically tense governments

  12. Triggering Factors & Unique Characteristics

  13. China Transition to Market Economy • China’s Open Door Policy in 1978 • Failure of Mao’s planned economy led to marketization • Economic disparity between China and rest of Asia • Willingness to move away from tense political relationship towards neutral economic policy • China sees relationship as move towards reunification • Taiwan sees as way of getting political concessions • Support from Chinese entrepreneurial spirit • Freedom to use business talents • main driver of economic growth was is private sector/business executives in China

  14. Inherent Affinities • Widespread net of business guanxi • Economic ties started with HK and Guangdong • Longstanding social and familial ties • 80% of HK people have roots in Guangdong • Cultural pride • Common culture, heritage, and language

  15. Synergistic Comparative Advantages • China • Abundance of land, raw material, cheap labor • Taiwan • Technological capability and financial resources • Hong Kong • Marketing, communications, and service industries

  16. Unique Characteristics

  17. Taipei Times Survey • 66% wants investment-protection agreement • 58% want official trade office • 58% exercise personal influence to settle dispute • 35% sought advice from business groups • 32% sought mediation Taipei Times (2003)

  18. Impact of Political & Economic Effects

  19. Effects of 1997 Handover • Before 1997 • 150 years of British colonial rule • Hong Kong enjoyed laissez-faire governance and economic growth • After 1997 • Hong Kong becomes SAR of China • Change in formalistic categories in trade relations with China & Taiwan • Designated with “separate tariff zones” status in treaty and agreements

  20. Concerns & Impact • Concerns • Increased regulation of HK-Taiwan trade relations • Tourism downturn • Spillover of political tension to economic relations • Impact • No dramatic economic change • No unification of law • Basic Laws maintains HK’s neutral status

  21. Effects of WTO Accession • Pre-Accession • No trade relationship or negotiation forum • China & Taiwan had no direct links • Accession & Ambiguity • China: Dec 11, 2001 • Chinese Taipei: Jan 1, 2002 • Post-Access • Negotiations via representatives in WTO • China must act according to WTO agreement and multilateral framework

  22. Concerns & Impact • Concerns • Competition with mainland ports • MNCs might move base to Shanghai • Possible lifting of ban on direct links • Increased cross-strait tension for legitimacy • Impact • Competition with mainland not immediate concern • Taiwan’s accession no longer political threat • Multilateral framework fosters constructive dispute resolution

  23. What is Hong Kong’s Future?

  24. Hong Kong’s Priorities • Maintain comparative advantage as “economic nexus” to sustain city’s growth • Capitalizing on China’s economic development • Promote greater democracy in people’s minds

  25. Impact of Globalization • Helping? • Reinforces China-Taiwan-HK economic relations via WTO • China’s exposure to foreign markets and privatization may lead to socially liberal and free-market ideals • Solidifies Hong Kong’s international recognition and strategic gateway to China • Integration into global economy increases pressure on China to adhere to rule of law

  26. Impact of Globalization • Hurting? • Increasing interdependence make economies more vulnerable • More interaction and economic linkages might cause more friction • Opening Hong Kong to outside competition • Possibility of lifting direct link ban

  27. Recommendations

  28. Recommendation #1 • Maintain comparative advantage via transparent and stable monetary system, port facilities, and efficient service sector

  29. Recommendation #2 • Draw international recognition and legitimacy as “international legal person”

  30. Recommendation #3 • Use WTO as forum to form Closer Economic Partnership Arrangement (CEPA) with Taiwan

  31. Conclusion • Much political and economic stake in keeping status quo • Ambiguity is key • Focus on economics over politics • Advantages in forming informal free trade arrangements

  32. Questions or Comments?Thank you!

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