Hong Kong's economic relationship with China

Abstract

The Hong Kong-China relationship has been driven by the complementarity between the two economies, by Hong Kong's entrepôt role and by the relocation of Hong Kong firms into southern China. We argue here that the relationship is entering a new phase. Hong Kong will remain a highly competitive supplier of entrepôt services to China, despite the success of the open-door policy. However, the regional focus of Hong Kong's investment in China is set to broaden. The sectoral focus of Hong Kong's trade with China is also set to widen. There is, however, some debate in both Hong Kong and China, Guangdong in particular, about the appropriate industry policy settings in this relationship. The argument of this paper is that Hong Kong continues to offer highly competitive intermediary services to China and that the changing competitiveness in Guangdong offers a new set of opportunities to Hong Kong which will actually lead it to a deeper economic relationship with China in terms of its regional focus and sectoral coverage.