Hong Kong and Macau: Economic Bridges to Mainland China
If you are a first time visitor to Hong Kong or Macau, these two jewels of the Far East wow you. In the evening, dazzling lights embellish the famous skyline of Hong Kong's Victoria Harbor. During the day, the Bank of China rises high above the financial district in a tower of stacked triangles and X's. The tower's structure resembles modernistic bamboo shoots, which symbolize the livelihood and prosperity of Chinese commerce. A short ferry ride away from Hong Kong, Macau greets you with a combination of rich colonial history and modern Asian culture. You can ascend the 66 grand stone steps to explore the remaining façade of St. Paul's Cathedral, the most significant icon of Portuguese colonialism. Later, you can enjoy the splashy neon lights, visit the gaming tables and watch the entertaining floor shows at the Grand Lisboa Casino. What else do these two jewels of the Far East have in common? How does each one represent a bridge to China?
Hong Kong and Macau have been key assets for Mainland China for the last few decades; over this time period, these two regions have acted as cultural and economic bridges, connecting China to the international market even before the significant Chinese economic reform that started in the late 1970s. In this paper I will analyze the current status of both Hong Kong and Macau as economic bridges linking China to the international market. I will discuss the current state of economic integration between Hong Kong, Macau and Mainland China and how this integration will continue to be beneficial for the Mainland and both special administrative regions (SARs). My analysis focuses on the economic integration of these three areas starting in the late 1970s, because this is when Mainland China began to radically
liberalize its economic policies and opened up to the international market. These economic reforms served as
the catalyst for stronger economic integration between Hong Kong, Macau and Mainland China.
The unique “fabric” that makes up the economies of Macau and Hong Kong helps to understand why each region
contributes a different type of integration link for China. In Macau, it is the tourism and gambling industry, whereas in Hong Kong, it is the banking, investment and trade sectors. These different economic compositions, coupled with a historic and unprecedented health event, have fortified the status of Hong Kong and Macau as economic bridges to China. Of the two, the Hong Kong economy has emerged as stronger and more suitable for international trade relationships. Accordingly, Hong Kong has rapidly developed into a sort of middleman of China since the beginning of the economic reforms initiated by China in the late 1970s. In turn, Macau offers a distinct, yet equally strong, bridge to China: it
is a language and cultural link between China and the Lusophone (Portuguese-speaking) countries. Each of the two SARs thus boasts a unique contribution to the larger integration between China and the rest of the world.
Historical Information on Hong Kong and Macau
Hong Kong and Macau are currently two special administrative regions (SARs) of the People’s Republic of China (PRC). These two territories have a unique history with longstanding connections to Europe. Both Hong Kong and Macau were previous dependencies of, respectively, the British Empire and Portugal and returned officially to the PRC in the 1990s. The unique colonial histories of Hong Kong and Macau have allowed both territories to have historically special positions in the international community as bridges between the East and the West.
Hong Kong became a colony of the British Empire immediately following the First Opium War. In 1997, China resumed sovereignty of Hong Kong. This unique history has allowed Hong Kong to have a special position in the international system as a bridge between the East and the West.
On 19 December 1984, the prime ministers of the PRC and the United Kingdom signed the Joint Declaration of the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the People’s Republic of China on the Question of Hong Kong. This agreement, also known as the Sino-British Joint Declaration, discussed the return of Hong Kong to the PRC as a special administrative region (SAR) in 1997. The Declaration states:
“The Hong Kong Special Administrative Region will be directly under the authority of the Central People's Government of the People's Republic of China. The Hong Kong Special Administrative Region will enjoy a high degree of autonomy, except in foreign and defence affairs which are the responsibilities of the Central People's Government.”
This declaration specified that the laws and legal system, which were enforced in Hong Kong at the time, would remain unchanged. Additionally, and perhaps most importantly, this joint declaration allowed the social and economic systems in Hong Kong to remain unchanged. This meant that Hong Kong could maintain its capitalist economic system for at least fifty years after its return to the PRC (until 2047).
From the mid-16th century up until 1999, Macau was administered by Portugal. After the arrival of the Portuguese hundreds of years ago, Macau became open to international trade and investment. The city was once one of the most important ports for foreign trade in southern China, until it became overshadowed by Hong Kong when the latter became a colony of the UK (Yao 53).
Similarly to the agreement made with the UK about the Question of Hong Kong, the PRC negotiated with Portugal with respect to Macau’s return in 1999. The Sino-Portuguese Joint Declaration, formally known as the Joint Declaration of the Government of the People's Republic of China and The Government of the Republic of Portugal on the Question of Macao, was signed in Beijing in 1987. Just as the aforementioned declaration for Hong Kong, the Sino-Portuguese Joint Declaration allowed Macau to maintain its capitalist economic system and its legal system, thereby maintaining a high degree of autonomy for at least fifty years after its return to the PRC. Macau was the first and last European colony in Asia.
The handover of Macau in 1999 resulted in new growth and economic development in Macau as a result of the liberalization of the local economy, particularly with respect to the gambling sector. The new SAR government reformed the old Portuguese administrative system. The most notable move to liberalize the economy was introducing competition to the monopolized telecommunications and gambling sectors.
In 2000 and 2001, the telecommunications and gambling industries were both opened by the Macanese government. Immediately following this economic liberalization policy, incoming foreign direct investment dramatically rose, which helped the territory to recover from a recession. This inflow of foreign direct investment helped fully recover the Macau economy, and dramatically improved new business potential and a double-digit growth to the territory. As noted by Yao, “...[i]n line with the economic reforms, the number of Chinese visitors to Macau’s casinos increased and contributed to the recovery of the gambling sector” (9).
Rather than principally identifying itself as a window or gateway to China, Macau identifies itself more as a tourist location for vacation and leisure. Macau is the only place in China which has legal, government-regulated casinos. Casinos have legally operated in Macau ever since the beginning of the 19th century and the gambling sector of the Macanese economy has become the most important source of revenues for the local government. Casino visitors come “mainly from Hong Kong, Japan, the US and Europe, with Hong Kong being the most important market” (Yao 54).
There is perhaps an even more important bridge that Macau offers to China, one that goes well beyond the attraction of tourists who contribute revenue to the local economy. Macau represents a language and cultural link between China and the Lusophone countries, a term used to describe those countries around the world where Portuguese is spoken. The Lusophone countries have formed the Community of Portuguese Language Countries, known as the CPLC for its Portuguese acronym. The eight CPLC member nations are home to more than 240 million people located across the globe. These people, otherwise separated by great distances on different continents, are linked by a common language and shared cultural features. When a visitor from Brazil or Portugal, Mozambique or Angola, arrives in Macau, he or she enjoys the immediate sense of identity that comes with having cultural similarities and a shared history with persons living in Macau. As we shall see later on this essay, this qualitative link is more representative of the unique contribution of Macau to the integration between China and the rest of the world.
Chinese Economic Reforms: A Breath of Fresh Air
China pursued dramatic economic reforms starting in 1978, which utilized capitalist market principles. These reforms were under the name “Re-adjustment, Reform, Consolidation and Improvement,” with the ultimate goal of resolving imbalances in the Chinese economy. The primary goals of these economic development strategies were to encourage the inflow of foreign capital and resume its economic connections with the outside world. “Hong Kong and
Macau, as well as Taiwan, were then regarded as the stepping stones in the liberalization process, and a number of preferential policies, including the formation of special economic zones (SEZs) were initiated toward these economies
so as to attract their investments” (Yao 7). These special zones were established in order to generate external funding, which would in turn spur more economic development.
However, China’s economic liberalization policies faced significant challenges, particularly due to the country having minimal experience with operating under a market system (capitalist) economy. Additionally, international investors were hesitant to do business with the country. As such, it was necessary for China to find a middleman or stepping stone in order to overcome these challenges to reform. This situation allowed Hong Kong to be considered as a window to China.
Impact of Economic Reform in China on the Hong Kong Economy
Following the drastic economic reforms implemented by China, Hong Kong’s role as the international bridge to China intensified. Hong Kong “served as a stepping stone in the entry of foreign products and capitals to the nearly opened-up China market” (Yao 42). Hong Kong’s economy shifted from industrial-based to service-based following China’s economic reforms. The territory’s trade, construction, banking and finance sectors grew dramatically and became key components of the new economy. A complementary economic relationship formed between China and Hong Kong due to Hong Kong’s specialization “in the provision of business, trade, banking and financial services to facilitate the economic transition and development of China” (Yao 42). Hong Kong-provided services varied widely from sales services to venture capital funding, to quality control.
The impact of the major economic reforms implemented by China was extraordinarily positive for Hong Kong. Unlike Macau, which was characterized by an underdeveloped banking sector and the absence of a financial market, Hong Kong had a mature infrastructure to support trade, banking and finance. Hong Kong thus flourished, and quickly became a “fundraising” center for China. But it would take an unprecedented and extraordinary health episode to boost the economies of HK and Macau even further.
In February 2003, the Severe Acute Respiratory Syndrome (SARS) epidemic broke out and was first reported in Asia. SARS quickly developed into a pandemic, spreading through the region, and creating worldwide concern. Despite the zero infection record in Macau, the pandemic had a devastating effect on its economy, heavily reliant on tourism, because visitors lost their confidence to travel there. For a period of almost two years, the eyes of
the world in general, and those of the international medical community in particular, were focused on the region.
By 2004, when the pandemic was finally controlled, the disease had seriously affected the economy of both Hong Kong and Macau.
The response by the Chinese government to the economic blow dealt by SARS was swift, and is best explained by Yao:
“SARS could be seen as a turning point for the Hong Kong economy as the mainland Chinese government attempted to introduce a series of preferential policies to support the post-SARS economic recovery of
Hong Kong...In order to accelerate the recovery process of both special administrative
regions, the Chinese government introduced the preferential Closer Economic
Partnership Arrangement (CEPA) and the ‘free-to-go’ policies” (43).
The ‘free-to-go’ policy consisted of tourist arrangements under which Chinese citizens from some major cities were allowed to visit Hong Kong and Macau more conveniently than ever before. The CEPA allowed selected categories of goods and services produced or provided by Hong Kong and Macau to be exported to China without tariff and trade restrictions.
The ‘free-to-go’ arrangements and the CEPA had a dramatic impact on both territories, but this impact was felt in
different parts of their respective economies. In Macau, the impact was mostly visible in the tourism and gambling
“Following the liberalization of the gaming industry, the introduction of a ‘free-to-go’ arrangement to allow Chinese citizens to visit Macau on an individual basis in late 2003, and the completion and grand opening of new foreign-invested casinos in 2004, millions of Chinese and Hong Kong tourists have been visiting Macau to bring about a record high level of incoming tourists and a strong flow of foreign demand to the territory” (Yao 9).
In Hong Kong, the impact was mostly felt in the banking, trade and investment sectors. The free trade agreements consolidated Hong Kong as a magnet for foreign investment ultimately destined for China. “The CEPA affects Hong Kong investments. For U.S. traders, investing in a Hong Kong firm right now might be your best bet into China as the CEPA enhances the ability for Hong Kong businesses to get into the Chinese market with greater ease than any other nation” (“Mainland and Hong Kong Closer Economic Partnership Arrangement”). It is in this respect that Hong Kong has strengthened its position as the economic bridge between China and foreign economies.
Both Hong Kong and Macau share a fascinating history, and the study of their economies is enormously enriching. Their economies vary in their composition, with Macau boasting a strong tourism and gaming industry while Hong Kong has a mature trade, banking and finance infrastructure. Each territory offers a strong bridge to Mainland China, based on the strength of their respective economies.
But China is the world’s largest economy, and it is undeniable that the world, particularly the West, is interested in investing in China to reap the benefits of what appears to be unstoppable growth. Although the growth of the Chinese
economy has slowed down a bit over the past few years, this growth is still larger than that of any African economy or that of any other Asian or South American nation. As such, any “bridge” that can facilitate entry into the Chinese market, either in the form of foreign investment or technology, is likely to be seen favorably by the West.
For this reason, it is my opinion that, of the two, Hong Kong represents today the stronger and more viable economic bridge into China.
While the link into China that Macau offers may not be as strong on the economic front as that provided by Hong Kong, Macau contributes an equally strong bridge into China, one of a different nature. Macau offers a language and cultural bridge between China and the Lusophone countries. Citizens and residents of the Community of Portuguese Language Countries who visit Macau enjoy the immediate sense of identity that comes with having cultural
similarities and a shared history with those living in Macau.
In summary, each of these two Chinese special administrative regions offers its own strong link to China, and each of the regions can boast its unique contribution to the larger bridge between China and the rest of the world.
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