Hong Kong: One country, two economies

by: Ben Bland / 20 July 2016 / Financial Times

As China’s slowdown hits wealth and relations sour, can the territory revive its fortunes?

On the edge of Hong Kong’s Victoria Harbour, workers are building a cavernous station that will be the terminus for one of the most expensive high-speedrail links ever constructed. The $11bn fast train linking Hong Kong to mainland China is meant to be a showpiece for integration between the semi-autonomous territory and its mother country.

Instead, the over-budget and behind-schedule project has turned into a symbol of the deteriorating political and economic relationship between Beijing and Hong Kong. It could be a foretaste of the profound difficulties that lie ahead for the global financial centre.

To smooth rail departures, the Hong Kong government is planning to place Chinese border police inside Kowloon station, much like French police conduct checks on outgoing Eurostar passengers at St Pancras terminus in London. The proposal might have been convenient for travellers but was worrying Hong Kongers, even before the detention last year by the mainland police of five Hong Kong publishers who sold works critical of China’s ruling Communist party.

The case of the booksellers has crystallised anger over growing interference by Beijing. Opposition legislators have vowed to block the rail project rather than allow Chinese police to operate in the heart of Hong Kong.

“To me it’s unacceptable and it is worrying for the Hong Kong people,” says Kenneth Leung, a lawmaker in the city’s legislative council. “We don’t want integration with China because our style and way of thinking can’t be integrated.”

After delays caused by technical difficulties and cost overruns, the political opposition could mean further problems for the 26km rail line to Shenzhen, just over the border in China. It had been scheduled to open in 2015 but will not be operational before late 2018.

Unfortunately for Hong Kong the battle over its future is coming as its China-dependent economy faces the “worst time in 20 years”, according to John Tsang, the financial secretary.

“Hong Kong is really dependent on China and external trade,” says Lily Lo, an economist at DBS, the Singaporean bank, in Hong Kong. “The Chinese economy is slowing down and this is a structural slowdown so we don’t think there will be a V-shaped recovery any time soon. There’s no quick fix.” Read more...

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