Is Hong Kong following China in its Belt and Road dream? - Natixis

Alicia Garcia Herrero, Chief Economist at Natixis, explains that while leaders meet in Hong Kong to discuss its role in the Belt and Road Initiative (BRI), they would like to assess how relevant Hong Kong’s involvement in the BRI has been so far. 

Key Quotes

“To do so, we first review China’s progress in the BRI and then move to Hong Kong’s role with a special focus on its comparative advantage, namely as international financial centre.”

“China’s increasing influence on the BRI countries can be found by the fact that outward foreign direct investment (OFDI) from China into the BRI countries has been much more resilient to the 2017 slowdown than overall OFDI from China. In the same vein, according to the Ministry of Commerce, the newly signed foreign contracted projects in BRI countries now make up as much as 58% of total as of July 2017, rising from 45% two years ago. This shows that China’s leadership calling for more focus on Belt and Road is having an impact on business, at least as long as OFDI and international projects are concerned.”

“As an international financial center, Hong Kong is at an envious position to benefit from the BRI opportunities. However, data on direct channel shows that banks and corporates in Hong Kong have so far limited exposure to the BRI. The share of cross border lending from Hong Kong to the BRI countries has stagnated at 17%. Although Hong Kong might have been contributing indirectly – i.e., as could be indicated by increasing lending into China - the lack of direct cross border lending to the BRI countries is worrisome as Hong Kong’s key role should be to use its pool of foreign savings into BRI international projects.”

“All in all, although we believe Hong Kong is well positioned to benefit from the B&R initiative, it does not make the best use of its financial connectivity advantage, at least so far. Infrastructure needs are massive in the BRI countries and China cannot possibly finance the whole project on its own. Hong Kong should not miss the chance.”