Hong Kong’s long-standing status as an international trading centre and aviation hub will not be lost easily despite a plan by China to turn Hainan province into a free trade port with lucrative tax incentives and preferential treatment, industry leaders and observers say.
Their assurance over Hong Kong’s competitiveness came on Tuesday after Beijing unveiled a package of policies – including zero import duty – to shape the southern, tropical island province into a vast free trade port.
The long list of preferential policies for Hainan, a popular holiday destination, included a lower income tax rate of 15 per cent for selected individuals and companies, and relaxed visa requirements for tourists and business travellers.
Under Beijing’s vision, the province, which covers an area about 30 times that of Hong Kong, will be promoted as a regional trade, shopping and shipping hub.
Hong Kong’s advantage is we have a very good legal system and rule of law
Felix Chung, lawmaker
The promised personal income tax rate of 15 per cent is the same as the standard rate in Hong Kong, instead of the maximum 45 per cent on the mainland.
Zero tariffs would also be applied to a list of imported goods, including manufacturing equipment, cruises and aircraft, the production of raw materials, and consumer items.
Joe Chau Kwok-ming, president of the Hong Kong General Chamber of Small and Medium Business, said the city’s status as a trading hub and shopping paradise would not be overtaken by Hainan, at least for the short term.
“Hong Kong has a lot of competitive edge, including track records for credibility and integrity. These are things Hainan won’t easily catch up with. Another example is Hong Kong’s talent. They have good communication skills for maintaining an extensive network of contacts with the international community,” he said.
Chau said Hong Kong’s other advantages, such as the provision of professional services in the legal, financial and accounting sectors, were important pull factors for investors and also set the city apart from Hainan.
“I am not worried mainland tourists will go to Hainan instead of Hong Kong for shopping and tourism as Hong Kong has an international appeal for them,” he said.
As for the province’s aviation industry, air traffic rights would be relaxed to give foreign airlines more of an incentive to use Hainan for transit rather than Hong Kong or Singapore en route to a third country.
There was also a pathway for foreign airlines to launch regional bases on the island – which could be seen as a play to make Hainan more attractive relative to Hong Kong for air travel.
Jae Woon Lee, an assistant professor at Chinese University and an expert in international aviation law, said foreign airlines had potentially better alternatives to expand rather than being wooed by Hainan.
Lee noted the rules would allow foreign airlines to compete with mainland carriers, but it was not so straightforward.
“A low-cost carrier, such as AirAsia, may see an opportunity between Hainan and other Asian cities. But this needs to be cleared by the partner states, which is another hurdle,” he said.
Dr Vic Li Yu-wai, an assistant professor at the Education University of Hong Kong and a specialist in international political economy, said Hainan did not seem to have the market readiness or policy incentives to draw away capital flows which were now destined for, or going through, Hong Kong.
But Li said Hong Kong’s vulnerability lay in how international firms and the financial community would perceive the city as a global financial hub after the proposed national security law was put in place.
OCBC Wing Hang economist Carie Li Ruofan said it would take a long time for Hainan to catch up with Hong Kong as the city had a better location and was closer to wealthy Guangdong province and countries overseas.
“For many countries, Hong Kong has been among their top 10 trading partners, especially for the export of advanced electronic products. This kind of long-standing partnership will not been easily replaced by others,” she said.
Li said Hong Kong’s appeal for mainland tourists was as part of a shopping and entertainment hub with Macau and had its special attraction.
Lawmaker Felix Chung Kwok-pan, leader of the business-friendly Liberal Party, did not believe Hainan would challenge Hong Kong, at least in the short term. But he conceded the plan created another choice for investors.
“Hong Kong’s advantage is we have a very good legal system and rule of law and we have been working closely with the Western world for 100 years,” Chung said.
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This article Hong Kong unlikely to lose edge as global hub despite China’s plan to turn Hainan into free trade port, business chiefs and industry experts say first appeared on South China Morning Post