HK can facilitate creation of a financing hub for shipping

In March Premier Li Keqiang laid out the blueprint for the Guangdong-Hong Kong-Macao Greater Bay Area in his Report on the Work of the Government in March. The plan, proposed in line with the framework of the Belt and Road Initiative, is another example of Chinese mainland-Hong Kong economic cooperation.

Exploiting its unique strengths in shipping and finance, the city should blaze a new path to become the ship financing center in the massive cluster of cities.

Boosted by the shift of global economic gravity to the east and the mainland economic boom, mainly driven by the supply-side reform and the Belt and Road Initiative, Hong Kong and Guangdong province are set to see more opportunities for the shipping and logistics industries.

Hong Kong can leverage the ever-growing ports and commercial activity in Guangzhou and Shenzhen to enhance its role and significance in the shipping services market. Meanwhile, Guangzhou and Shenzhen can improve their competitiveness and expand into the Southeast Asian market through cooperation with Hong Kong. It is vital for Hong Kong to work with other shipping hubs on the mainland, especially when Guangzhou now focuses on ship-financing as part of its core development plan to evolve into an international shipping hub.

The city's Nansha port has become the third-largest shipyard on the mainland and is gearing up for intermodal transport, such as transfer from river to sea traffic, or sea to railways.

Being an international financial center, Hong Kong can provide professional and all-round ship financing services to ship-owners and shipyards in the Asia-Pacific. Almost all the major banks and financial institutions have a presence in the city. And with a sophisticated financial system Hong Kong has already become a fund settlement center in the Asia-Pacific region in various sectors, including settlement for ship financing.

Compared with other cities in the region, Hong Kong's greater degree of freedom for fund settlement makes settlement of overseas freights and allocation of capital extremely flexible and convenient here; this helps cut operating costs. These advantages exactly match Nansha's needs as it focuses on developing an industrial economy comprising an advanced shipbuilding port industry and modern shipping services, which require a huge amount of capital.

International freight derivatives are tools for the shipping industry as well as shipping-related oil and commodities industries to cope with fluctuation in freight rates. As China's interest in international shipping and trade continues to grow, there is a strong need to strengthen the competitiveness of those derivatives.

Compared with the mainland, Hong Kong has an obvious advantage in areas such as clearance and settlement of payments denominated in US dollars. It also responds comfortably to the operating structure of complicated financial derivatives, languages and operating customs.

Hong Kong, London, Singapore and Shanghai are all global shipping hubs but Hong Kong is the only such hub that has not established, and does not own, a shipping exchange. To strengthen Guangzhou-Hong Kong cooperation, emphasis should be placed on development of the Guangzhou Shipping Exchange, which was established in 2011.

Hong Kong should take the initiative to work together with this exchange in creating new freight derivatives.

To fully utilize Hong Kong's strength, Nansha shall regard the collaboration as the core project in developing the ship financing sector.

It is always easier said than done. The development of a Hong Kong-Guangzhou-Shenzhen shipping financial hub still faces many obstacles, such as the separate customs areas of Guangdong and Hong Kong, different legal systems, restricted flow of human resources and capital. The lack of coordination among airports and ports, the lack of institutions on cross-border communication and the different economic systems are also daunting.

Anyway, China's healthy economic development, the expansion of the Belt and Road Initiative and the Greater Bay Area blueprint provided Guangdong and Hong Kong with valuable opportunities. The governments of Hong Kong, Guangzhou and Shenzhen and the shipping industry shall work hand-in-hand to make up for each other's weak points and facilitate each other's development.

(HK Edition 06/23/2017 page1)