China’s Deepening Reforms – An Interview with Chief Executive Leung Chun Ying of Hong Kong Special Administrative Region

The Third Plenary Session of the 18th Central Committee of the Communist Party of China (CPC) adopted the Decision of the CPC Central Committee on Some Major Issues Concerning Comprehensively Deepening Reform, which charts the country’s future development. Hong Kong, global hub of commerce and trade with the largest offshore RMB liquidity pool, bears great significance to the mainland economy. Since the plenum, many have asked the question: How will Hong Kong Special Administrative Region employ the opportunities that the envisioned deepened reforms create to advance its collaboration with the mainland?

China Today put this question to Chief Executive Leung Chun Ying of Hong Kong SAR in an exclusive interview.

Deepened Cooperation

on Multiple Fronts

China Today: The decision adopted at the plenum relates to multiple fields of reform. To which do you think Hong Kong could best lend its advantages? In what ways will the region accelerate its cooperation with the mainland amid China’s fresh bout of opening-up and reforms?

Mr. Leung: HK is a global trade and financial hub whose service sector is among the world’s most developed, and which accounts for 90 percent or more of its GDP. HK is prominent by virtue of its huge talent pool, international vision, rich experience in the service industry, innovative thinking, and high professionalism. These qualities make HK a valued complementary partner for the mainland in the latter’s efforts towards industrial restructuring and upgrading.

The two sides signed the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) in 2003, and have since signed 10 supplements to it. The CEPA includes 403 measures to open up trade in services between the two signatories. It thus significantly facilitates their cooperation in this regard, and augurs mutual benefit for businesses on both sides. The agreement is also a boon to HK service providers entering the mainland market and to professional exchanges, as it encourages the relevant mainland and HK authorities to recognize one another’s vocational qualifications. We will carry on working towards free service trade between the two sides and on enhancing exchanges and cooperation between our respective service industries.

In response to the challenges stemming from the flux in the external economic environment, many enterprises have fine-tuned their strategies and revised future development plans. They now put more stock on brand building, design and product quality, among other factors that bolster added value. HK’s service industry has much to offer in this industrial restructuring and upgrading drive. For instance, it can provide mainland companies with credible testing and accreditation services, top-flight design, and consultations on brand development and marketing. This will lead to increments in international prestige as well as in products’ added value, hence opening up more market opportunities.

The central government set the goal in August 2011 of realizing free service trade between the mainland and HK through the CEPA by the end of the 12th Five-year Plan period (2011-2015). The SAR government has worked with the Ministry of Commerce for the past three years on this issue. It has meanwhile solicited relevant opinions from the business sector.

The Decision of the Central Committee of the Communist Party of China on Some Major Issues Concerning Comprehensively Deepening Reform, adopted at the Third Plenary Session of the 18th CPC Central Committee, set the course for comprehensive deepening of China’s reform. Meanwhile, the central authorities’ resolve to expand the country’s service industry is manifest in establishment of the China (Shanghai) Pilot Free Trade Zone (FTZ). We believe that the pilot FTZ will bring into play its demonstrative function and accelerate liberalization of the mainland’s service trade. Institutional innovations, such as pre-establishment national treatment and the negative list management mode implemented in the Shanghai FTZ, will supplement the options through which the mainland and Hong Kong can basically realize reciprocal free service trade.

There remain two years before the end of the 12th Five-year Plan period. The Hong Kong SAR government will hence accelerate efforts to advance negotiations with relevant mainland governmental sectors and promote service trade liberalization between the two sides. It will also expand fields of cooperation through further CEPA supplementary agreements.

Meanwhile, deepened opening-up and reforms to the mainland’s financial system will bring the RMB into wider use in international trade and investment. Hong Kong, as an international RMB offshore transaction center, will provide support for countries and regions throughout the world in their conduct of offshore RMB business. Hong Kong’s asset management industry could, through a strengthened two-way flow of RMB, play a more active role in boosting our country’s financial development. Hong Kong is potentially the optimal platform whereon mainland enterprises and individuals manage wealth and make overseas investments. In addition, the stipulation in Supplement X to CEPA – that both sides acknowledge one another’s fund products – will undoubtedly enrich the scope of their respective fund products, creating new opportunities for the industry and investors in the mainland and Hong Kong. Meanwhile, to facilitate implementation of our country’s policy of globalizing capital in an orderly way, Hong Kong will enact its role of international asset management center by managing capital in ways that benefit both itself and the mainland, so achieving a win-win result.

In response to the central authorities’ reform roadmap, the SAR government will enhance financial cooperation between the mainland and Hong Kong. This endeavor will include providing more diversified financial services and investment products for mainland enterprises and individuals in a bid to enrich their finance, investment and wealth management choices. Through its advantages as a forerunner in the industry, Hong Kong will seize every opportunity generated by our country’s deepening reform to become the world’s largest and most influential offshore RMB business center. Its main goal will be to boost the RMB financing market and develop diversified RMB financial products. The SAR government will also do its utmost to support our country’s drive to deepen reform.

Upon the central government advancing the mainland’s capital account liberalization, Hong Kong, with its mature and stable financial market, will maintain its role as our country’s test ground under the “one country, two systems” framework. By acting as a “firewall” against financial risks, Hong Kong will make it possible for our country to push forward reforms of its financial system on the premise of controllable risks. All these measures will lay a good foundation for RMB internationalization.