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Greater Chinese Economic Area


  • pg 1

        Greater Chinese
中        Economic Area
    Its Impact & The Role of Hong Kong

                     Presented By: Marianne Chow
華               China & Globalization, Winter 2006
• Research Thesis
• Background on Emergence of CEA
• Triggering Factors & Unique
• Impact of Political & Economic Events
• What is Hong Kong’s Future?
• Recommendations
• Conclusion
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:
    (1) Remove trade barriers to ensure more efficient
        trade within CEA
    (2) Secure Hong Kong’s position as intermediary
    (3) Take advantage of WTO standardized rules and
        dispute resolution mechanism
Background on Emergence
                 of CEA
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”
Political Component

• “Greater Chinese”
  – China-Taiwan
    • One Country, Two Governments
       – China: Weakening of resolve towards
       – Taiwan: Focuses too much on economics rather
         than political legitimacy

  – China-Hong Kong:
    • One Country, Two Systems
Economic Component
• Taiwan          External Merchandise Trade (2004)
Share in World Exports           1.99   Share in World Imports       1.77

Breakdown of Total Exports              Breakdown of Total Imports

By Main Commodity Groups                By Main Commodity Groups

   Agricultural Products         2.5       Agricultural Products     5.4

   Fuels & Mining Products       4.7       Fuels & Mining Products   18.7

   Manufactures                  92.8      Manufactures              75.4

By Main Destination                     By Main Origin

   1. China                      19.6      1. Japan                  26.1

   2. Hong Kong                  17.1      2. United States          12.6

   3. United States              16.5      3. China                  10.0

   4. EU                         12.8      4. EU                     9.9

   5. Japan                      7.6       5. Korea, Republic of     7.0

WTO Statistics Database (2004)
Economic Component (Cont)
• China External Merchandise Trade (2004)
 Share in World Exports          6.48   Share in World Imports       5.91

 Breakdown of Total Exports             Breakdown of Total Imports

 By Main Commodity Groups               By Main Commodity Groups

    Agricultural Products        4.1       Agricultural Products     7.5

     Fuels & Mining Products     4.3       Fuels & Mining Products   15.9

     Manufactures                91.4      Manufactures              76.3

 By Main Destination                    By Main Origin

    1. United States             21.1      1. Japan                  16.8

    2. EU                        18.1      2. EU                     12.5

    3. Hong Kong                 17.0      3. Taipei                 11.5

    4. Japan                     12.4      4. Korea, Republic of     11.1

    5. Korea, Republic of        4.7       5. United States          8.0

WTO Statistics Database (2004)
Economic Component (Cont)
• Hong Kong External Merchandise Trade (2004)
 Share in World Exports          2.90%   Share in World Imports       2.87%

 Breakdown of Total Exports              Breakdown of Total Imports

 By Main Commodity Groups                By Main Commodity Groups

    Agricultural Products        1.7        Agricultural Products     4.1

     Fuels & Mining Products     1.6        Fuels & Mining Products   4.2

     Manufactures                94.2       Manufactures              91.0

 By Main Destination                     By Main Origin

    1. China                     43.0       1. China                  43.2

    2. United States             16.5       2. Japan                  12.1

    3. EU                        14.1       3. EU                     8.0

    4. Japan                     5.2        4. Taipei                 7.2

    5. Korea, Republic of        3.3        5. United States          5.3

WTO Statistics Database (2004)
  Geographical Component

• “Economic Area”

  – Economic Integration
     • Institutional

  – Regionalization
     • Informal
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
Triggering Factors & Unique
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
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
 Synergistic Comparative
• China
  – Abundance of land, raw material, cheap labor

• Taiwan
  – Technological capability and financial resources

• Hong Kong
  – Marketing, communications, and service industries
Unique Characteristics
                          CEA                       EU
History           Driven by economic Driven by economic &
                  need               political need
Type of           Informal economic       Treaty on European
                  integration             Union (1992)
Size              3 countries             25 member states

Main Player       Private Sector          Public Sector
Areas covered     Economic and cultural   Health, economic,
                                          domestic & foreign
                                          affairs, defense
Type of market    Localized               Single, common customs

Standardization   Gap in standard of      European Central Bank,
                  living, financial and   common trade,
                  legal system            agricultural, foreign &
                                          security policies
Taipei Times Survey
• 66% wants investment-protection agreement

• 58% want official trade office

• 58% exercise personal influence to settle

• 35% sought advice from business groups

• 32% sought mediation
Taipei Times (2003)
Impact of Political & Economic
  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
  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
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
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
What is Hong Kong’s Future?
 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
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
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
Recommendation #1
• Maintain comparative advantage via
  transparent and stable monetary system,
  port facilities, and efficient service
Recommendation #2
• Draw international recognition and
  legitimacy as “international legal person”
Recommendation #3
• Use WTO as forum to form Closer
  Economic Partnership Arrangement
  (CEPA) with Taiwan
• Much political and economic stake in
  keeping status quo

• Ambiguity is key

• Focus on economics over politics

• Advantages in forming informal free trade
Questions or Comments?

      Thank you!

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