OPINION – Deepening Free Trade Zones in the Mainland: Economic and Geopolitical Implications for Hong Kong, Macau and Taiwan

On November 24, Ren Hongbin, the Assistant Minister of Commerce of the government of the People’s Republic of China (PRC), said in a press conference that Hong Kong and Macau will be integrated into the process of fostering closer trade relations with the mainland, thereby facilitating the construction of a “single Free Trade Zone.” His remarks were not covered widely in the media of Hong Kong and Macau, but the deepening process of Free Trade Zones (FTZs) in the mainland, including Guangdong and Fujian, has significant economic and geopolitical implications for not only Hong Kong and Macau but also Taiwan.

Ren Hongbin remarked that Hong Kong’s trade volumes had been expanding rapidly from 2015 to 2019, exhibiting an export growth rate of 33.5 percent from January to October 2021 and outperforming the mainland’s export growth rate by 1.6 percent during the same period in 2021 (Wen Wei Po, November 25, 2021, A14). Ren pointed to the impressive volume of foreign direct investment in the Hong Kong Special Administrative Region (HKSAR), which absorbed 50.9 percent of the PRC’s outbound investment from January to October 2021. Clearly, the HKSAR remains a crucial platform to attract FDI on the one hand and to act as a magnet for the mainland’s outward investment on the other. 

Under these circumstances, the mainland has to “perfect the closer economic partnership” with the HKSAR and Macau SAR, constructing a “single FTZ.”  According to Ren, this “single FTZ” will facilitate and elevate trade and investment liberalization, promote the circulation and mobility of goods and product, maximizing the comparative advantages of Hong Kong and Macau, actively contributing to the “double circulation” of the PRC’s economy, fostering the “international” circulation with the global economy, and constructing a “new developmental strategic set-up” (Wen Wei Po, November 25, 2021, p. A14). Ren’s remarks were economically and significant, because the HKSAR and Macau SAR are occupying a key role in not only the deepening process of the FTZ in South China, but also the acceleration of “double circulation” of the mainland Chinese economy in the post-Covid-19 era.

At the same time, the PRC Ministry of Commerce published an important document on the developmental blueprint of external trade and “high quality development” in accordance with the 14thfive-year-plan. Ren elaborated the challenges and work plans of the PRC in the coming years.

The challenges include, according to Ren, the persistence of Covid-19 and the unstable foundation of global economic recovery, the pervasiveness of unilateral protectionism in the world, the trend of global inflation, and the shortened, localized and regionalized nature of the global logistical supply chains. He admitted that many invoices of mainland enterprises were delayed or cancelled, that the costs of production, including shipping and freight charges, were increasing, and that barriers to supply chains persisted, such as the blockage of ports and the reduced airline and cargo services. The lack of invoices, chips and labor supply has become prominent in the mainland, according to Ren. 

As such, the PRC is reorienting its developmental strategy in three aspects: (1) the elevation and deepening of the existing Free Trade Zones to continue the process of economic liberalization; (2) the promotion of the entry into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Digital Economy Partnership Arrangement (DEPA); and (3) the utilization of Regional Comprehensive Economic Partnership (RCEP) to promote the mainland’s localities to promote, train and lead economic development, to cooperate with other countries economically and to elevate the standards of bilateral trade. 

Clearly, the PRC is utilizing international economic organizations to stimulate internal and local economic development and liberalization. Internal economic liberalization is also deepened and accelerated for the sake of enhancing the international aspect of “double circulation,” while external international economic organizations are providing the necessary impetus for internal economic liberalization.

Ren Hongbin, Assistant Minister of Commerce of the People’s Republic of China

Under the circumstances in which FTZs in the mainland are undergoing a process of deepening and expansion, there are tremendous economic and geopolitical implications for Hong Kong, Macau and Taiwan.

As early as October 2019, the PRC Vice Premier Hu Chunhua visited Guangdong and said that Guangdong’s FTZ must be more open to develop further as a demonstration region for the Greater Bay Area (GBA), Hong Kong and Macau. However, the persistence of Covid-19 and the political chaos in the HKSAR in 2019 delayed the process of deepening the Guangdong FTZ. Now, with the smooth implementation of the national security law in the HKSAR and the deepening of economic integration in the GBA, the closer integration of both Hong Kong and Macau into the Guangdong FTZ is becoming a priority in the economic agenda of developmental blueprint in the minds of the central government’s economic planners.

As such, the development of the Northern Metropolis in the HKSAR, the closer economic cooperation between Hong Kong and Shenzhen, and the construction of the Macau-Hengqin Cooperation Zone must be put together as an economic basket for us to understand their importance for the deepening of the Guangdong FTZ. All these developmental initiatives can stimulate the faster economic development and integration between the HKSAR, Macau SAR and the entire Guangdong province, including the cities in the GBA. After all, the GBA development can and will contribute to the PRC’s Belt and Road initiatives.

The gradual opening of the border between the mainland and the HKSAR and the increasing human and trade interactions between the mainland and Zhuhai will pave the way for the next stage of economic integration and development: namely the acceleration of the GBA and the Guangdong FTZ development. All these economic activities have a special external economic function from Beijing’s economic and geopolitical perspective: the activation of internal economic circulation facilitates the PRC’s economic liberalization internally and its external applications to join the CPTPP and DEPA, while simultaneously using the RCEP to empower and unleash the full potentials of China’s existing 21 FTZs.

Yet, economic liberalization in the PRC means that investors and businesspeople in Hong Kong and Macau must understand the mainland’s law and regulations much deeper and better than ever before. A sudden report on Wenzhou city’s arrest warrant for a casino capitalist in Macau on November 26 meant that the businesspeople of Macau, and Hong Kong, must be highly sensitive to the mainland’s law and regulations. The PRC remains a socialist state whose economic operations are different from the relatively more capitalistic nature of Hong Kong and Macau. 

Given the fact that the deepening of FTZs is high in the PRC’s economic policy agenda, it is the ripe time for the Macau government to publish its consultative document on the review of talents. The consultative period lasts from November 10 to December 24, 2021. The document begins with a critical look at the lack of talent policy in the Macau SAR. It calls for the importation and cultivation of four types of talents in Macau’s first stage of talent development: big health, modern financial and monetary talents, high tech and cultural as well as sports talents. The document is a good move addressing the lack of local talents in Macau; nevertheless, there are weaknesses in the planning process.

First, the consultative document focuses on Macau’s domestic development without adopting a broader picture of the needs of the development of the GBA and Guangdong FTZ. Statistical data are still lacking in the available GBA talents who can match the needs of Macau, and vice versa. Secondly, if Macau is to develop the talents in the four areas mentioned above, the government must establish a much closer partnership with local universities and tertiary institutions, which at the same time must go into GBA to establish campuses and closer cooperation with mainland tertiary institutions. Thirdly, a triangular committee between the Macau employers, local universities and the government must be held regularly so that the plans will be implemented in a more effective manner. Otherwise, a grandiose plan without detailed implementation procedures will likely make Macau continue to be deprived of local talents, who will likely be imported from the mainland and yet whose tendency to work and reside in the GBA will likely and ironically hollow out the pool of local talents in Macau.

Similarly, the HKSAR will need much better planning in the cultivation of local talents. Given the declining local student population in Hong Kong, the government of the HKSAR must sooner or later relax the entry of mainland students to study in the HKSAR and negotiate with the PRC government in allowing more mainlanders to study in the city. Secondly, as with Macau, the HKSAR government may have to set up a talent developmental committee to actively engage the participation of local employers and local universities so that, in the process of economic integration with the GBA and Guangdong FTZ, local talents would not be hollowed out and thereby affecting the city’s competitiveness.

In the final analysis, the deepening process of the Fujian FTZ would likely have the function of conducting united front work to win the hearts and minds of more Taiwan people in the years to come. Once Covid-19 would gradually fade away, Beijing-Taipei relations would likely undergo a warmer process of enhancing cross-strait visits, mutual exchanges and human interactions. By that time, the development of the FTZs in Fujian and Hainan Island would likely provide more useful economic platforms to lure Taiwan into the mainland’s economic orbit. These FTZs may also become platforms through which Taiwan, if joining the mainland economically one day as an economic union, may be allowed to join some economic international organizations that the island republic is now unable to do so. After all, the mainland’s FTZs can become a launching pad for Taiwan to enter the economic markets of Southeast Asia in a win-win-situation. After the recent publication of the party resolution of the Chinese Communist Party that calls for more initiatives from the mainland to enhance relations with Taiwan, mainland officials have begun to emphasize the economic benefits to Taiwan if the two sides come closer together economically in the coming years.

In conclusion, the deepening process of the Free Trade Zones in the mainland, especially in Guangdong, Fujian and Hainan, has significant economic and geopolitical implications for Hong Kong, Macau and Taiwan. Economically, Hong Kong and Macau’s closer and faster integration into the Greater Bay Area is going to benefit the acceleration and deepening process of the Guangdong Free Trade Zone, while at the same time calling for the governments of the two SARs to think deeper and broader on how to nurture, grow and retain local talents while importing the necessary mainland talents for the co-prosperity development of the Greater Bay Area. Taiwan would likely benefit economically if the Free Trade Zones of Fujian and Hainan will develop in a full-fledged manner. In other words, the process of deepening economic liberalization in the mainland has significant, positive economic and geopolitical implications for Hong Kong, Macau and Taiwan in the coming years.