Research Report Is Uploaded Onto the Website of the Policy Innovation and Co- Ordination Office (PICO) for Public Reference

Strategic Public Policy Research Funding Scheme

策略性公共政策研究資助計劃

Project Number : 項目編號： S2016.A1.009.16S

Project Title : Hong Kong Professional Services in the Co-Evolving Belt- 項目名稱： Road Initiative: Innovative Agency for Sustainable Development 香港專業服務與一帶一路：推進可持續發展的創新能動性

Principal Investigator : Professor LI Che Lan, Linda 首席研究員：李芝蘭教授

Institution/Think Tank : City University of Hong Kong 院校／智庫：香港城市大學

Project Duration (Month): 推行期 (月) ： 39

Funding (HK$) : 總金額 (HK$)： 3,400,000.00

This research report is uploaded onto the website of the Policy Innovation and Co- ordination Office (PICO) for public reference. The views expressed in this report are those of the Research Team of this project and do not represent the views of PICO and/or the Assessment Panel. PICO and/or the Assessment Panel do not guarantee the accuracy of the data included in this report.

Please observe the “Intellectual Property Rights & Use of Project Data” as stipulated in the Guidance Notes of the Strategic Public Policy Research Funding Scheme.

A suitable acknowledgement of the funding from PICO should be included in any publication/publicity arising from the work done on a research project funded in whole or in part by PICO.

The English version shall prevail whenever there is any discrepancy between the English and Chinese versions.

此研究報告已上載至政策創新與統籌辦事處（創新辦）網站，供公眾查閱。報告內所表達的意見純屬本項目研究團隊的意見，並不代表創新辦及／或評審委員會的意見。創新辦及／或評審委員會不保證報告所載的資料準確無誤。

請遵守策略性公共政策研究資助計劃申請須知內關於「知識產權及項目數據的使用」的規定。

接受創新辦全數或部分資助的研究項目如因研究工作須出版任何刊物／作任何宣傳，均須在其中加入適當鳴謝，註明獲創新辦資助。

中英文版本如有任何歧異，概以英文版本為準。

Hong Kong Professional Services in the Co-evolving Belt-Road Initiative:

Innovative Agency for Sustainable Development

香港專業服務與一帶一路：推進可持續發展的創新能動性

Strategic Public Policy Research Scheme

S2016.A1.009.16S 1

Final Report2

2020.06

1 The Strategic Public Policy Research (SPPR) scheme is funded by the Policy Innovation and Coordination Office of the HKSARG. Funding for this project (the Study) was awarded in January 2017 and execution formally commenced in March 2017 until June 2020. Project Team includes: Prof Linda Chelan Li (Principal Investigator), Prof Phyllis Mo, Prof Lin Feng, Dr Chan Ho Mun, Dr Michael Wong, Dr Iris Kam, Dr Raymond Wong, Mr David Holloway (since 11 September 2018), Mr David Yip, Dr Liang Yuqing, Prof Yue Fangmin (collaborator) and Dr John Ho (till 11 September 2018). 2 Acknowledgements to members of the report-preparation support team for their contributions to the compilation of the report: Kin On Li, Jeffrey Chung, Man Luo, Chun Kit Chui, Jennifer Hung, Xin Yan, Dingyi You, Cleo Wong, and more names (Ji Chao, Benny Kwok, Jason Chan, Yamin Xu, Linda Tjia, Wilson Chan, Raymond WM Wong, Chunlaing Gao, Socheat Oum, Charles Wong, Xiaohe Zheng, Guilan Zhu and many others) contributing to the research leading to this report. 1

Table of Contents Executive summary ...... 3 Introduction ...... 11 PART 1 Overview report ...... 12 PART 2 Findings chapters ...... 68 Chapter 1 Belt-Road Initiative: Defining Feature ...... 69 Chapter 2 The Coevolving Views on Hong Kong’s Role in BRI ...... 91 Chapter 3 Belt and Road Project Financing and Hong Kong ...... 116 Chapter 4 The Hong Kong Accountancy Profession and Belt and Road ...... 161 Chapter 5 Hong Kong as Belt and Road Initiative Dispute Resolution Hub ...... 189 Chapter 6 Belt & Road Sustainability and Role of Hong Kong ...... 215 PART 3 Overseas research activities reports ...... 243 Overseas Research Activity 1: Cambodia ...... 244 Overseas Research Activity 2: Vietnam ...... 266 Overseas Research Activity 3: Sri Lanka ...... 283 Overseas Research Activity 4: Myanmar ...... 299 APPENDICES ...... 316 Appendix 1: Summary Report for Guangdong Research ...... 317 Appendix 2: Collaboration Infrastructure ...... 358 Appendix 3: Research Engagement and Dissemination Activities ...... 361 Appendix 4: Interviewees ...... 384 Appendix 5: Survey questionnaires ...... 433 Appendix 6: Publications and Outputs ...... 442

Executive summary Abstract of the research There is high expectation for Hong Kong professional services to contribute to the Belt-Road Initiative (BRI), especially from the governments of Hong Kong and mainland China, and also from overseas stakeholders in the Belt and Road (B&R) destinations. The expectation lies in the excellent professional strengths of the Hong Kong professional services and their alignment to international standards, the significant impact of which has been demonstrated in their instrumental role in the transformative development of the Chinese economy. The expansive scope of the initiative has posed challenges to effective communication and policy execution, however, as BRI has been described as a ‘highly imaginative venture’. The Hong Kong professionals have also found it difficult to match official enthusiasm, so that actual participation in BRI projects has been uneven and relatively low. This study starts with an objective to understand the divergence in expectations and assessments, and contemplates how the gap may be narrowed. The central research question is: What role can Hong Kong professional services play in the BRI, in the interest of the sustainable development of the BRI as well as Hong Kong?

We adopt a mixed methodology premising an action research approach to find an answer. We identified and engaged with the main, but diverse, stakeholder groups in interviews, surveys and field observations in Hong Kong, Mainland, and selected B&R destinations. We organized and attended seminars, training workshops and conferences. We spoke in great lengths with government officials, business leaders, accountants, lawyers, investors, bankers, and policy analysts and academics. Understanding the dynamic agency of various stakeholders has contributed to a better understanding of their decisions and enabled us to formulate proposals which are reflected in the policy papers and other research publications, and summarized in the policy recommendations in this Final Report. In total, we have held 435 in-depth interview meetings, have organized or attended 86 major research dissemination and engagement activities and produced 45 major publications, including 9 policy papers, 12 journal articles, 9 book chapters, and a book volume within the 3-year period of the study. The Sustainable Hong Kong Research Hub of the Research Centre for Sustainable Hong Kong at City University of Hong Kong has developed a broad-based network of over 2,200 members to facilitate synergistic communications and foster understanding and collaborations, using social media as well as traditional means.

人們對香港專業服務在一帶一路建設中的貢獻有很高期望，特別是香港和內地政府，以及一帶一路地區的海外持分者。他們的期望是建基於香港專業服務具備卓越專業實力，並與國際標準接軌，其重要影響已在中國經濟轉型發展中發揮過重要作用。然而，由於一帶一路倡議涵蓋面極廣，更被部分評論形容為是一場「極具想像力的冒險」，因而給有效溝通和政策執行帶來了挑戰。香港專業人士很難與官方的熱情相提並論，不同專業人士之間實際參與一帶一路項目的情況參差不齊，而且整體來說相對較低。這項研究的目的，是了解和評估這種預期與實際的差距，並思考如何縮小差距。研究的核心問題是，香港專業服務可以在一帶一路中扮演什麼角色，從而有利於一帶一路

以及香港的可持續發展。我們採用混合的方法，配合行動研究來尋找答案。我們在香港、中國大陸和選定的一帶一路目的地採訪、調查和實地考察，確定了主要但又不同的持分者，並與他們接觸。我們組織和參加了研討會、培訓班和會議，與政府官員、商界領袖、會計師、律師、投資者、銀行家、政策分析師和學者有多輪深入的交談。了解不同持分者，有助於我們更好地剖析他們作出決定背後的動因，使我們能夠透過政策建議書及其他研究出版物來寫出我們的看法，並在本報告中總結出一系列建議。在 3 年研究時間裡，我們共有 435 次深度訪談，組織或參加了 86 次重要的對談及發佈活動，有 45 份主要出版物，包括 9 份政策建議書，12 篇學術期刊文章，9 篇書本章節，以及一本專著。香港城市大學香港持續發展研究中心，利用社交媒體和傳統方式，建立了一個基礎廣泛的網絡，由超過 2200 名成員組成，以促進協同溝通、理解和合作。

Layman summary on policy implications and recommendations

This Study focuses on the identification of potential opportunities and contributions of Hong Kong professional services in the Belt and Road Initiative. This topic has important implications in three broad areas of policy: (1) the sustainable development of Hong Kong economy, in particular the professional service sectors; (2) the sustainable development of the Belt and Road initiative; and (3) the sustainable development of Hong Kong as a special administrative region of China and an international hub of modern business, financial centre, knowledge creation and innovations. The three areas of policy are inter-related, and together they pertain to not only the well-being of the local population of Hong Kong but also the broader interests of the national development of China on the whole. The findings of the Study have generated 20 policy recommendations, aiming at closing the gaps and deficiencies identified, and extending the capacities to enable a full play of potentials.

The 20 policy recommendations fall in seven themes: 1. Clear delineation of BRI objectives and public-private responsibilities: Recommendation 1 Clarify the quasi-public goods nature of the BRI and focus public communication on this defining feature to avoid misunderstanding. Recommendation 2 Delineate clearly the respective responsibilities of the private-public participation to enable transparency and accountability, and risk management.

2. Orient Hong Kong’s role in the BRI as a soft power hub and foster innovations and reform amongst participating stakeholders vide the Guangdong-Hong Kong-Macau Greater Bay Area (hereafter GBA) and beyond Recommendation 3 Hong Kong’s role in the BRI should stress on its capacity of innovations and soft skills and knowledge, which enables it to foster the capacity building of such skills in BRI stakeholders in China and developing B&R destinations as required. Recommendation 4 GBA as a national development strategy is more than a plan for regional economic development of the eleven cities in Guangdong, Hong Kong and Macau, but a vision plan to foster innovative reform and institutional building leveraging on the unique advantages of Hong Kong and Macau. This principle should guide the formulation of GBA measures, for instance on factor mobility and collaboration.

3. Extend Hong Kong’s capacity and contributions as IFC for sustainable BRI financing: Recommendation 5 Build an investment and financing model specifically designed for cross-border infrastructure, with a B&R project database categorizing the projects into public, quasi-public and private nature to facilitate investors’ decisions based on expected risk and return. A screening mechanism will be formulated to select projects that have high-quality corporate governance, sound financial condition with stable cash flow. The selected high-quality projects can be securitized as bonds, trust funds or equity securities for sale to private investors. To enhance the sustainability of B&R projects, 5

governments should provide incentives such as tax reduction or exemption to encourage project initiators to reinvest the capital raised into new projects. Recommendation 6 Establish a public credit rating agency designated for B&R bonds. The new credit rating agency should be knowledgeable in assessing infrastructure project risks, country and business risks in developing and Islamic countries. Recommendation 7 Establish mechanisms to strengthen B&R bond market development. Examples are bond funds with a diversified portfolio of B&R bonds for both institutional and retail investors, which can help to grow the size of the market, and the offer of credit default insurance on selected bond issuers to lower the investment risk of B&R bonds.

4. Formulate incentives to encourage synergistic collaboration to lower transaction costs of participation, and raise capacity through education investment for the accounting professionals Recommendation 8 Professional accountants who are interested in exploring the BRI should cooperate to have better synergies of individual expertise and provide mutual assistance. Accounting firms should be more active in establishing partnerships overseas. Recommendation 9 Hong Kong accountancy professional bodies and the education sector should consider adding more B&R elements in their training or educational courses.

5. Extend Hong Kong’s capacity and contributions in BRI dispute resolution as an international arbitration and mediation hub Recommendation 10 The government can provide improved incentives to increase the presence of law firms from BRI countries in Hong Kong, and to simplify visa approval procedures to enhance the inflow of international arbitration talents. Universities in Hong Kong can expand their arbitration programmes to students from the B&R countries, assisted if possible by government scholarships. Recommendation 11 Enhance the training and professional development programmes for the local talent pool. There should be more components about Islamic laws in the training programmes at local law schools and more courses on foreign languages and cultures for continuing education and regular programmes. Government to offer more tangible support to the organization of academic conferences on B&R issues. Recommendation 12 Hong Kong government seeks the support of the central Government to make Hong Kong the preferred venue for the resolution of B&R disputes in BRI project execution by the participating enterprises. Recommendation 13 Hong Kong and mainland China should collaborate more in the development of dispute resolution. In particular, HKSAR Government and the relevant stakeholders in Hong Kong should change its mentality from thinking only about Hong Kong’s interests to putting itself in the shoes of the GHM Greater Bay Area and coming

up with a collaborative strategy to develop dispute resolution mechanisms in the GHM Greater Bay Area together. For example, Hong Kong’s eBRAM platform will also enhance its impact by strengthening collaboration with similar projects in China. Recommendation 14 Invest to raise Hong Kong’s visibility and sustain our involvement in major global arbitration events. The government should encourage the event organisation and participation with more tangible incentives. Recommendation 15 Extending the Hong Kong pre-litigation mediation procedures for cross-border disputes in Chinese courts, starting from Guangdong. Recommendation 16 Extending the Mainland-Hong Kong Joint Mediation Centre (MHJMC) to cover Macau and/or the establishment of a GMH Bay Area Mediation Centre or Association, and unify the protocols.

6. Enhance viability and reduce risks of BRI projects Recommendation 17 Hong Kong government to recommend to the central government the benefits of implementing ESG reporting system for B&R projects. Piloting can start in selected state-owned enterprises who will take a lead in submitting ESG reports, before extending to all BRI participating enterprises. Recommendation 18 Hong Kong should raise our standards of the ESG reporting system to improve the quality of ESG practices in Hong Kong business. Resources should be invested in training of talents to meet the forthcoming demand from B&R participating enterprises for ESG reporting. Recommendation 19 To provide better support for 360-degree risk management of BRI projects, Hong Kong should expand and improve public databases of professional service providers according to different professional categories to facilitate enterprises’ search for different services. The scope should go beyond the traditional focus on financing, accounting and legal services to cover broader project management and risk assessment dimensions, for instance public engagement and relations, corporate social responsibility, cultural awareness, language, and human resources training.

7. Extend Hong Kong professional services’ capacity in overseas markets Recommendation 20 Hong Kong SARG can provide more extensive support to Hong Kong business and professional services with an interest to develop overseas through linking them with prospective partners in the host country, with Chinese companies working on BRI projects and with the local government and academia for advice and consultation where necessary.

政策影響和建議的簡明摘要

這項研究的重點是找出香港專業服務在「一帶一路」倡議中的潛在機遇和貢獻。本課題對三個主要政策範疇有重要影響: (1) 香港經濟的可持續發展，特別是專業服務業﹔(2) 「一帶一路」可持續發展; 以及 (3) 香港作為中國特別行政區和現代商業、金融中心、知識創造和創新的國際樞紐的可持續發展。這三個範疇的政策是相互關聯的，既關係香港本地居民的福祉，也關係中國國家發展的整體利益。研究結果提出了 20 項政策建議，旨在彌補發現的差距和不足，擴大能力，充分發揮潛力。

這20項政策建議分為7個主題: 1. 明確「一帶一路」目標和區分公、私屬性建議1 闡明「一帶一路」的准公共產品性質，並將公眾焦點放在這一界定特徵上，避免誤解。建議2 清楚界定公共及私人部門參與「一帶一路」項目時分別的責任，以落實透明、問責，以及風險管理制度。 2. 確立香港在「一帶一路」中軟實力樞紐的角色，促進粵港澳大灣區(以下簡稱大灣區) 及其他地方不同持分者參與創新和改革。建議3 香港在「一帶一路」中的作用應該突出創新能力、軟技巧和知識能力，以利於促進「一帶一路」來自中國及發展地區不同持分者的能力建構。建議4 把大灣區建議作為國家發展戰略，不僅是粵港澳11個城市區域經濟發展的規劃，更是發揮港澳獨特優勢，推進創新改革和制度建設的願景規劃。因此粵港澳之間的要素流動不應簡單地追求「對等」，而是要互補不足，這應成為大灣區制定相關措施時的指導原則。 3. 增強香港國際金融中心角色在「一帶一路」可持續融資方面的能力和貢獻: 建議5 建立專門的跨境基礎設施投融資模型，設立「一帶一路」資料庫，將項目分為公共、准公共和私人性質，方便投資者根據預期風險和回報決策。制定篩選機制，挑選管備良好公司管治水平、財務狀況良好、以及現金流穩定的項目。選定的優質項目可以證券化為債券、信託基金或股權，出售給私人投資者。為提高「一帶一路」項目的可持續性，政府應提供減稅或免稅等激勵措施，鼓勵項目發起人將籌集的資金再投資於新項目。建議6 設立指定的「一帶一路」債券信用評級機構。新的信用評級機構應該具備評估發展中國家和伊斯蘭國家基礎設施項目風險、國家和商業風險的知識。建議7 建立機制推進「一帶一路」債券市場發展，例如為機構投資者和散戶投資者提供多元化的「一帶一路」債券投資組合，以助擴大市場規模; 以及為選定的債券發行人提供信用違約保險，以降低「一帶一路」債券的投資風險。 4. 制定會計行業的激勵措施，鼓勵協同協作及降低參與交易成本﹔投資會計人才教育

以提高業界實力建議8 對「一帶一路」倡議有興趣的專業會計師應開展合作，發揮各自專長的優勢，相互幫助。會計師事務所應該更積極地在海外建立合作關係。建議9 香港會計專業團體及教育界應考慮在其培訓或教育課程中加入更多「一帶一路」元素。 5. 提升香港國際仲裁和調解中心角色，以增強在「一帶一路」爭端解決機制中的能力及貢獻建議10 政府提供更好的激勵措施，吸引「一帶一路」沿線國家的律師事務所在香港設立辦事處，並簡化簽證審批程序讓國際仲裁人才來港。在可能情況下，香港的大學可在政府獎學金協助下，將仲裁課程擴展至來自「一帶一路」國家的學生。建議11 加強規劃本地人才庫的培訓和專業發展。本港法律學院的常規及持續進修課程中應加入更多關於伊斯蘭法，外語和文化的課程。政府應提供更切實的支持，以籌辦有關「一帶一路」的學術會議。建議12 香港政府應尋求中央政府支持，使香港成為「一帶一路」參與企業在項目執行過程中解決爭議的首選地。建議13 香港和中國內地應加強合作發展爭議解決機制，各方在參與建設大灣區爭議解決機制時，除了考慮區本位的看法，也應兼顧其他地方持分者的利益，藉此共同促進發展。例如，香港的eBRAM平台與內地的類似網上法律項目，如果能夠產生協同效應，那麼便定可提高影響力。建議14 投放資源，以提高香港知名度及持續地參與全球重大仲裁活動。政府應以更切實的激勵措施，鼓勵籌辦和參與這些活動。建議15 尋求從廣東開始，在內地法院審理跨境糾紛時，擴大採用香港訴前調解程序。建議16 將內地-香港聯合調解中心(MHJMC)擴展至澳門及/或成立大灣區聯合調解中心或協會，並統一協定。 6. 提高「一帶一路」建設的可行性及降低風險建議17 香港政府向中央政府提出在「一帶一路」項目，推行ESG報告制度的好處。可以先由國有企業提交ESG報告做試點，然後再推廣到所有參與「一帶一路」的企業。建議18 香港應提高ESG報告制度標準，改善香港商界落實ESG的質素。投入資源培養相關人才，以滿足未來「一帶一路」參與企業對ESG報告的需求。建議 19 香港為支援「一帶一路」，已按不同專業類別設立專業服務提供者的公共資料庫。我們認為，資料庫範圍應更進一步，超越傳統的融資、會計和法

律服務，涵蓋更廣泛的項目管理和風險評估，例如公共參與和關係、企業社會責任、文化意識、語言和人力資源培訓等等，為參與「一帶一路」的企業，提供更全方位的服務。 7. 拓展香港專業服務在海外市場的能力

建議 20 香港政府可以為有興趣發展海外市場的商界或專業服務人士，提供更廣泛的的支援，替他們聯擊在地的合作伙伴，包括已在「一帶一路」投資的中國企業﹔在地的政府及專家學者，在有需要時尋求意見及諮詢。

Introduction The Belt-Road Initiative (thereafter BRI), initially known as One-Belt-One-Road (OBOR) Initiative, consists of two initiatives – the ‘Silk Road Economic Belt’ and ‘Maritime Silk Road’, announced by President Xi Jinping in September and October 2013 in Kazakhstan and Indonesia respectively. The change in name calling reflects a sharpening focus as the initiative evolves. With an expansive scope covering trade, finance, infrastructure, culture and diplomacy and an inclusive ‘membership’ going beyond countries along the historical trade routes, BRI has been described as a landmark national strategy of China to befit its new global role as a major power (Li et al., 2015; Lin, 2016; Wang, 2015). Domestically, BRI is designed to benefit the ongoing structural adjustment and government reforms – the ‘supply side’ reforms- to contribute to a new phase of economic growth and sustainable development. The expansive agenda, exemplified by the ambitious construction projects of land and maritime infrastructure and communication links to promote trade, travel and the interflow of goods and services across countries and continents, have gone through a series of changes in policy directions, which have attracted a lot of interest as well as questions internationally. The purpose of the Study is to explore the challenges and potential opportunities, as well as the possible contributions of Hong Kong professionals along the evolution of the BRI via the deep engagement of key stakeholders in mainland China, Hong Kong and Belt and Road (B&R) destinations. In light of the expansive scope of the subject of research and to enhance readability, the Final Report comprises an overview report (Part 1), a set of 6 findings chapters (Part 2) that elaborate the findings of the major constituent segments of the Study, and an account of the overseas research activities in four B&R destinations (Part 3), and appendices. The overview report covers the objectives of the Study, research methodology, research findings and analysis, policy implications and recommendations, and dissemination. Readers will be able to garner the main gist of the findings and recommendations from the overview report, and may refer to the findings chapters in Part 2 and Part 3 for more details.

PART 1 Overview report

1. Objectives of the study The ultimate objective of the Study, as stated in the Research Proposal, is “to extend the contributions of Hong Kong professional services, in particular accounting and legal services, to the Belt-Road Initiative through identifying the gaps in policy and industry, and exploring the challenges and opportunities to close those gaps so as to enhance the economic development of Hong Kong and mainland China”. The research team has closely followed this overall direction during the study period.

Specifically, 6 objectives have been listed under this general aim in the Proposal:

1. To garner a systematic understanding of the potential opportunities the Belt-Road Initiative poses to China and Hong Kong for their respective sustainable development, and challenges in its implementation; 2. To review the development of the Hong Kong legal and accounting professional sectors, including sector-specific and policy governance practices, to identify potentials and bottlenecks; 3. To investigate into the challenges of Chinese companies (taking companies in Guangdong Province as our primary sample, but not exclusively) faced when jumping into international market through “One-Belt-One-Road”, and the cooperation and coproduction that they anticipate from Hong Kong professional sectors; 4. To identify the main stakeholder groups and inquire into their views (such as government officials, business leaders, accountants, lawyers, institutional investors, bankers, students, and policy analysts/academics in Hong Kong and mainland China), diverse interests, dilemmas and concerns towards the Belt-Road Initiative, identifying and analyzing major gaps and differences in actors’ views, if any; 5. To explore with relevant stakeholders the possible pathways (such as develop mechanisms for handling resolution, providing a model law, making Hong Kong a hub for legal practitioners from countries relevant to Belt-Road Initiative, credit rating, project management, education and training) through which Hong Kong professional services may contribute to the Belt-Road initiative, and to scrutinize their feasibility and future potentials, working closely with various actors; and ultimately, 6. To facilitate a deepening of mutual understanding between the major players in Hong Kong and mainland China to benefit the implementation and co-evolution of the Belt- Road initiative.

These objectives have been satisfactorily executed and met. Table 1 shows the relations between objectives and the key findings – which findings contribute to the attainment of the objectives. The findings will be discussed in Section 3 of the overview report.

Table 1 Research Objectives and Findings

Objectives Findings

1. To garner a systematic understanding of the potential Section 3.1-3.7 opportunities the Belt-Road Initiative poses to China and Hong Kong for their respective sustainable development, and challenges in its implementation.

2. To review the development of the Hong Kong legal and Sections 3.3, 3.4, accounting professional sectors, including sector-specific 3.5, 3.6 and policy governance practices, to identify potentials and bottlenecks.

3. To investigate into the challenges of Chinese companies Sections 3.2, 3.7 (taking companies in Guangdong Province as our primary sample, but not exclusively) faced when jumping into Part 3 Overseas international market through “One-Belt-One-Road”, and research activity the cooperation and coproduction that they anticipate from report Hong Kong professional sectors Appendix 1 Guangdong report

4. To identify the main stakeholder groups and inquire into Sections 3.1-3.7 their views (such as government officials, business leaders, accountants, lawyers, institutional investors, bankers, students, and policy analysts/academics in Hong Kong and mainland China), diverse interests, dilemmas and concerns towards the Belt-Road Initiative, identifying and analyzing major gaps and differences in actors’ views, if any.

5. To explore with relevant stakeholders the possible Sections 3.3, 3.4, pathways (such as develop mechanisms for handling 3.5, 3.6, 3.7 resolution, providing a model law, making Hong Kong a hub for legal practitioners from countries relevant to Belt- Road Initiative, credit rating, project management, education and training) through which Hong Kong professional services may contribute to the Belt-Road initiative, and to scrutinize their feasibility and future potentials, working closely with various actors.

6. To facilitate a deepening of mutual understanding All in Section 3; in between the major players in Hong Kong and mainland particular Section China to benefit the implementation and co-evolution of 3.2 the Belt-Road initiative.

2. Research methodology Mixed methods in an action research approach

The Study has employed a mixed approach with qualitative and quantitative methods, including textual analysis of literature and documents, in-depth interviews with diverse stakeholders, surveys and field observations. More importantly, an action research approach is adopted to befit the application orientation of the research to optimize impact (Stringer 2013). Collaborative platforms are created as part of the approach to enhance cross-sector communications and understanding on the subject of research. The Sustainable Hong Kong Research Hub, set up in late 2016, and the Research Centre for Sustainable Hong Kong (hereinafter CSHK) set up in June 2017 at the City University of Hong Kong, provide a platform for the efforts which today include over 2,200 members from academia, industry, professional services and government in Hong Kong, overseas and Mainland China. Collaboration is forged with multiple organizations and individuals as the Study proceeds, on activities from joint research, exchange of views, training and professional development, to event co-organization. More details of the collaboration infrastructure and engagement activities are given in the appendices (Appendix 2 Collaboration infrastructure; Appendix 3 Research engagement and dissemination activities).

A notable characteristic of the action approach is the production of policy papers. A total of nine policy papers are published from the Study, with the first one, on credit rating, published in May 2017, and the latest one on factors flow in the Greater Bay Area in September 2019 (Table 2). In addition, 7 more policy papers on related themes are published under the CSHK policy paper series.3 The policy papers are usually drafted in consultation or after prior or parallel discussions with relevant stake-holders. They are shared with the key stakeholders when completed as a basis for further discussion on the subject. Engagement and impact go hand in hand with the progress of research in the action research approach.

Table 2 CSHK Policy Papers in Relation to the Study

Policy Paper # Title Date of First Issue 1 Credit Rating and OBOR Bond Market May 2017 Development: Issues, Challenges and Possible Solutions

3 Policy Papers, Research Centre for Sustainable Hong Kong - City University of Hong Kong, viewed 10 June 2020, https://www.cityu.edu.hk/cshk/p_papers.html. 15

Policy Paper # Title Date of First Issue 2 Thoughts on national strategic role of Guangdong- July 2017 Hong Kong-Macau Greater Bay Area: Leveraging on “One Country, Two Systems” in Hong Kong, envisioning advantages of soft power capacity of the Bay Area 5 Belt-Road Credit Rating Agency (BRCRA): March 2018 Outlining a Roadmap 8 Strengthening Hong Kong’s Position as an June 2018 Arbitration Hub in the Belt and Road Initiative 9 Dispute Resolution under the Belt and Road August 2018 Initiative: Constructing an Effective Mediation Regime in the Guangdong- Hong Kong-Macau Bay Area (一帶一路倡議下的爭議解決：在粵港澳大灣區構建有效的調解體系) 10 Establishing a Higher Education Hub in the August 2018 Greater Bay Area through Delinking Education and Population Policies (教育與人口政策脫鉤建設大灣區高等教育樞紐) 11 Greater Bay Area as an Option for Hong Kong January 2019 Youth - The Role of Hong Kong Government (讓粵港澳大灣區成為香港青年的真正選擇 ── 香港政府角色的思考) 12 Building a New Investment and Financing Model February 2019 for the Belt and Road Initiative (構建一帶一路新投融資模型) 14 Factor Flows in Greater Bay Area: Beyond September 2019 Symmetry-asymmetry Debate (大灣區要素流動的新思考方向: 超越對等與非對等)

In addition to policy papers targeting the policy circles, we have emphasized timely publication of the research findings and observations in forms of book chapters, journal articles, some in Chinese and others in English, catering to different groups of readers. A book in the Chinese language is published in July 2019 in time for the Hong Kong Book Fair to report on the interim findings of the Study. The PI lately completed co-editing a special issue on the institutional innovations and development of the Greater Bay Area with the Journal of Public Administration4 (Gonggong Xingzheng Pinglun), 2 (2020), Vol. 13 (in Chinese, edited in

4 The Journal of Public Administration is one of the most influential Chinese journals in the field of public administration. The journal belongs to source journal of CSSCI (2019-2020), the Core Journal of China (2017), and the Core Journal of Chinese Humanities and Social Science (2018). As of June 2020, its Comprehensive Impact Factor is 2.008, ranking 2nd in 56 journals of administration in China Academic Journals Full-text Database. 16

Guangzhou at the Sun Yat-sen University), with a special emphasis on the role of Hong Kong in the GBA transformative process. Another book chapter on the strategic role of Hong Kong in the Greater Bay Area by members of the research team is recently completed and forthcoming in an edited volume by a team from Tsinghua University, A Study on the Advantages and Roles of Hong Kong in the Greater Bay Area (in Chinese). The timely publication and sharing of interim findings befit the application orientation of the Study and is part and parcel of the action research approach, as the research outputs are instrumental to deepening of the discussions with key respondents to bear with the ongoing policy and execution process of the BRI. We shall elaborate further on the dissemination activities in section 5 of this report. A full list of the related publications is at Appendix 6.

In-depth interviews

The textual analysis and evaluation of primary and secondary materials serves as a starting point in our review of the BRI discourse, and background studies of the professional services sectors and BRI projects. This part of work prepares us with the knowledge to formulate interview guides with key stakeholders, design the survey questionnaires and plan visits to selected B&R project destinations to garner more in-depth information and insights. Table 3 lists the key themes of interviews in this Study.

Table 3 Key Interview Themes

Key interview questions: (interviews with sector leaders in Hong Kong, mainland China and B&R destinations).

Ø Views of stakeholders towards the opportunities and challenges during BRI implementation Ø Views of stakeholders towards the contribution of Hong Kong professional services in response to the opportunities and challenges identified in BRI implementation Ø Views of stakeholders towards the prospects and challenges of the Hong Kong professional services

Interviews are conducted usually in a semi-structured, informal and dialogue manner to facilitate spontaneous interactions. Targeted respondents include government officials, business leaders, accountants, lawyers, policy analysts and academics in Hong Kong, mainland China and B&R countries. Beijing is a major site to understand the views of national level policy makers and other key stakeholders, for example, the large state-owned companies who execute the most important B&R projects. In Guangdong we talked to local business, government officials and think tanks on their expectations for Hong Kong for their plans in B&R and Greater Bay Area developments. A report on the Guangdong research is in Appendix 1. We have visited a few overseas B&R destinations to understand onsite the challenges in BRI

17 execution and opportunities for the participation of Hong Kong. We summarize the observations and in particular the role of Hong Kong in Section 3.7, with more details given in the overseas research activity reports in Part 3.

A total number of 435 in-depth interviews were conducted between July 2016 and January 2020. The research team selected targeted stakeholders via purposive snowballing method through our own networks and referrals from our interviewees. Some examples of the organizational affiliations of our respondents are: People’s Bank of China, Party School of the Central Committee of the Communist Party of China, National Development and Reform Commission, Ministry of Commerce, Foreign Affairs College of China, China Association for Public Companies, Securities and Futures Commission of Hong Kong, Hong Kong Monetary Authority, the Hong Kong Bar Association, the Law Society of Hong Kong, the Asian Academy for International Law, the Hong Kong Mediation Centre, Hong Kong International Arbitration Centre, China International Economic and Trade Arbitration Commission, Hong Kong Institute of Certified Public Accountants, Society of Chinese Accountants and Auditors, Hong Kong General Chamber of Commerce, Hong Kong China Chamber of Commerce, The Chinese General Chamber of Commerce, Hong Kong Trade Development Council, relevant bureaus of HKSARG, and many in the business corporate field, including large Chinese state- owned companies, the large international accounting and legal firms, and small-medium size Hong Kong professional services firms. Table 4 gives an idea of the scope of interviews by broad categories of the organizational affiliations. A full list of the interviews is given, by chronological order, in Appendix 4.

Strict rules of confidentiality apply in the use of interview data. The female gender is employed throughout the report as a norm in referring to a specific respondent.

Table 4 Interview Respondents: Broad Categories

Categories No. of Respondents

Government/think tanks/NGOs in HK 37

Professional services in HK (finance, accountancy, legal, others) 47

Business in HK 28

Government/think tanks/academia/SOE in Beijing 74

Local government/think tanks/academia 70

Guangdong companies 73

Overseas stakeholders (governments, business, academics) 106

Total 435

Surveys

Where circumstances permit, we have administered surveys to canvass the views of a broader spectrum of participants. The response collected in the interviews, together with the background research, inform the design of the surveys. A full set of survey questions is at Appendix 5.

Accountancy sector and B&R survey

Ø The survey was conducted in collaboration with the Society of Chinese Accountants and Auditors (SCAA). Questionnaires were distributed in both paper and online formats from January to April 2018. 406 valid questionnaires were collected.

Ø The questionnaire consists of six sections and a section of personal information: (a) evaluation of the impacts of the BRI; (b) eagerness of participating in the BRI; (c) necessary attributes for participating in the BRI projects; (d) self-assessment on the necessary attributes for participating in the BRI projects; (e) types of services that individuals could provide when participating in B&R; (f) views on the contributions of Hong Kong to the BRI.

Ø The survey results were discussed and broadly disseminated through a well-attended press conference and to all SCAA members and professional accountants and related business and government departments. It was shared with participants of SCAA 105th Anniversary Celebration Gala Dinner and World Chinese Accountants Conference in 2018, and to relevant authorities in Beijing during a SCAA visit to Beijing. We also designed a similar survey for the legal sector in Hong Kong but response rate is low. We discussed the problems and sought assistance with the professional organizations but have to settle with in-depth interviews as the primary methods of data collection.

In Guangdong, we have worked with local think tanks to conduct research including surveys, interviews and group discussions. A questionnaire was designed to provide guidance to interviews and informal meetings. We have also collaborated with a team from a top provincial research institute in a joint research on the local business environment in which we explore local enterprises’ strategies of ‘go global’ and their expectations for Hong Kong professional services. Over 1000 questionnaires were completed in addition to a stream of interviews and group discussions with local officials and entrepreneurs. More details are given in Appendix 1.

3. Research findings5 The key findings of this Study fall into seven areas, which will be described and examined in this section one by one. The seven are:

3.1 Defining features of BRI: multiple interpretations 3.2 Hong Kong’s role in BRI: co-evolving views over time 3.3 Hong Kong in BRI financing 3.4 Hong Kong accountancy services and BRI 3.5 Hong Kong as BRI dispute resolution hub 3.6 BRI sustainability and role of Hong Kong 3.7 Overseas BRI experience and opportunities for Hong Kong

3.1 Defining Features of BRI6

The first key question asked in this Study is what the Belt-Road Initiative is really about. How are its objectives and how do people understand them? Are there major differences in the understanding and what accounts for the differences, if any, and what are the possible impacts? This question is prerequisite for a good understanding of the challenges and opportunities the BRI may pose for Hong Kong. We cannot expect to prepare well for something if we do not have good knowledge of it.

Based on literature analysis, interviews and discussions with a range of stakeholders with direct involvement with BRI policy, project execution, and research in the national BRI policy circle, we explored into these questions. In addition to the different interpretations of meanings for BRI in the literature, there are remarkably varied emphases amongst the stakeholders we spoke to in the national BRI policy circle regarding the defining features of the BRI, as well as their implications and challenges.

B&R is anywhere?

The scope of the Belt and Road is usually amongst the first batch of questions asked of the initiative. After much discussion in the earlier years of the number of countries ‘on the Belt’ and ‘on the Road’, the Leading Group for the Belt and Road Initiative of the Chinese Government clarified in 2017 that the BRI is not, in fact, limited to the 65 countries along the historical trade routes originally mentioned in the Silk Road Economic Belt and Maritime Silk Road Initiatives in 2013, but includes any country aspiring to be part of the Initiative. The BRI is, in other words, a scheme proposed by the Chinese government to improve the process of globalization. Indeed, as of January 2020, a total of 138 countries and 30 international

5 For more details of the findings in each of the parts (S.3.1-3.7) below, please refer to Part 2 findings chapters 1-6, and Part 3 overseas research activity reports. 6 For more details of the findings, go to Part 2.1 ‘Belt-Road Initiative: defining features’, of the Final Report. 20 organizations have entered into agreements in relation to the BRI with China, according to the Belt and Road Portal of the Chinese government.

B&R is anything?

As the geographical scope expands, so is the focus of activities and perceived objectives. The BRI is seen, in variance, as an economic policy, a diplomatic strategy, a cultural aspiration, an evolving mosaic containing a bit of each, or simply uncertain and in flux. Two views are especially worth noting from our discussions with key respondents involved in BRI policy. The first view stresses the evolving nature of the BRI, and sees BRI having gone through three phases of development, while the second emphasizes its uncertain prospects.

BRI as evolving BRI with uncertain prospects

“First, there was a stage of planning and “After BRI was first announced by research. It started when President Xi the President, we at the department proposed the Initiative in Fall 2013, and joined the early meetings to discuss lasted until the release of our vision implementation, but honestly none of statement at Boao Forum for Asia in us knows how to do (it). With 2014. During these months, we focused hindsight, those on the top levels on mobilizing (different governmental should know it well but they always units) to conduct studies to ascertain pretended that the Initiative is of no what we can do, and draw up initial military significance. The BRI plans … The second stage is exploratory should be a strategic move but now execution of the B&R projects. The many enterprises, including private Chinese enterprises are capable of sector ones, have joined the making decisions quickly, when the bandwagon, causing dubious circumstances require, and are very impacts. These efforts should have efficient to accomplish large projects. been managed more properly. But sometimes their pace is too fast. For However, there is no government instance, by September 2016, they had unit which is in charge with spent huge amount on foreign coordination (of the participation of investment but many projects were companies and social organizations found to be unpractical … So, the in the BRI). So, things are getting government organized a meeting and rather messy... It is problematic if we adjusted the regulations on foreign are not sure whether BRI is a investment in September 2016. In the governmental activity or a business Belt and Road Forum for International behaviour. Even the decision is made Cooperation held in May 2017, we by our leader who is omnipotent, he released our road map to better guide the may still have some blind spots. For next phase of execution … We have example, he may not fully know the learnt a lot from the experiences in the depth of the issues relating to state- first two stages and thus have now owned enterprises.…To implement become more rational and our steps BRI overseas, we need some pioneers. But who is going to pay for

steadier.” (Respondent No. 028, Beijing, the costs of pioneering the new 2018) markets? These issues require to be better thought through…” (Respondent No. 024, Beijing, 2017)

An important message from the above is that the meaning of BRI is not clearly defined nor understood from the beginning even at the pinnacle of BRI execution circle. The ambivalence in objectives and shifts in emphasis led to confusion and a feeling of ‘muddling through’ amongst stakeholders, which have hampered the effectiveness of encouraging wider participation in the Initiative in Hong Kong and internationally.

The style of communications and use of language may play a role as official documents on BRI, such as the Vision and Actions on Jointly Building Silk Road Economic Belt and 21st- Century Maritime Silk Road (hereafter Vision and Actions) (NDRC et al., 2015), often employ expressions which do not necessarily facilitate understanding (Du 2016). It may also reflect that the official conception itself is under a process of change. Event developments have gone beyond original expectations and there is insufficient capacity to manage the implementation process properly. Message cascading within the expansive and multi-tier bureaucracy is ineffective. Coordination between government and enterprises has been uneven.

At issue is blurred lines of accountability and a lack of a clear role differentiation between the government and the participating corporations, state or private. Some projects have been initiated by the governments, and must continue even when their economic sustainability becomes questionable. After agreements were reached between the top leaders of governments in a “strategic collaborative” relationship, relevant government departments will follow up with the detailed design, arrangements of financing and project execution. “Prior feasibility test is always absent in these cases,” as shared by an informed source, and the risk of economic loss becomes invariably high. This also explains why many companies taking part in B&R projects are stated-owned enterprises, as private companies are unlikely to welcome projects incurring a high financial risk. As it happens, state-owned enterprises have formed the backbone of “BRI pioneers” (Respondent No. 282, Hong Kong, 2019). The direct cost of the pioneering is provided by the state policy banks, which are a special genre of state-owned companies, through loans (Respondent No. 003a, Beijing, 2016).

BRI as quasi public goods: clearer delineation of government-enterprise responsibilities

BRI’s vision for co-development, connectivities, and sharing benefits makes it essentially a mechanism for the provision of quasi public goods in an international context. A recent joint report by the United Nations Development Programme and China Development Bank hence describes BRI as a programme of public goods contributing to the attainment of the UN Sustainable Development Goals (UNDP & CDB, 2019, Foreword). One prime objective of BRI is to release participating countries’ economic potentials and boost societal development through constructing new infrastructure or upgrading the existing facilities. It is also the reason why most BRI projects are related to infrastructure construction (Li, Ji & Chan 2019). But

22 international financial organizations, such as the World Bank and the Asian Development Bank, cannot meet the huge demand for investing infrastructure in the underdeveloped countries. Private corporations and investors are also unlikely to take part in infrastructure construction projects in these regions as monetary loss will likely be resulted from high risks and long construction cycle (Yu 2017). BRI is thus proposed against this background.

Private corporations should however play an important role as they possess the expertise essential for executing projects. Indeed, given the massive scale of B&R projects, the Chinese government is motivated to attract private sector participation and employ multiple financing models. A subsequent question is: how should the public and private sectors work together? Under what criteria should a project be funded by government resources or by commercial loans? In other words, both the public and private dimensions are critical in BRI and there is a need to delineate better their interface, and in particular the respective roles of the government and participating companies. The government can, for example, offer financial support to participating corporations to compensating part of the risks and cover some operational costs which the project users (of the host countries) cannot pay timely or fully. Public-private partnership models should be better utilized and further exploration into the detailed arrangements has been called for to attain the desired outcomes (UNDP & CDB 2019, pp.52- 54).

To sum up, on this question of BRI objectives we have found a lack of clear focus and definition both in the literature and in the BRI policy circle. This probably reflects that the understanding is indeed evolving as execution unfolds and the challenges therein are better understood. We postulate to understand BRI as a mechanism to provide public goods with private participation, thus ‘quasi public goods’, to befit its vision which is broadly in line with, and should contribute to, the attainment of the United Nations’ SDGs if adequately executed.

3.2 Hong Kong’s role in BRI: Coevolving views7 The second major question we explored in the Study is the role of Hong Kong in the BRI. To a large extent, this is the question the Study seeks to find an answer, and to explore the means of enhancing it. The question on the role of Hong Kong consists of two parts. The first refers to the expected role; the second the role as actualized. Between the two is the gap, which reveals the challenges or potentials that need to be addressed or to be met. This section focuses on the first part, that is, the expected role of Hong Kong in the BRI. The role as actualized reflects activities ongoing and will be discussed in later parts of Section 3 in relation to the participation of the professional services. Views and expectations on the role of Hong Kong in the BRI have changed over time, and we have identified three broad phases of development from interviews with Mainland and Hong Kong respondents. Interviews were conducted with individuals in Mainland China working on BRI policy and/or execution and in particular with an interest in Hong Kong. Interviewees in

7 For more details of the findings, go to Part 2.2 ‘The co-evolving views on Hong Kong’s roles in BRI’, of the Final Report. 23

Hong Kong are mostly leaders in the relevant professional services and the purpose is to garner the views of the industry leaders or pioneers on their expectations for Hong Kong in BRI, including their response to the expectations of the first group. We find that not only the views and expectations are changing but expectations from different stakeholders also influence and interact, so that they have ‘co-evolved’. Three phases have been identified. Exploratory: the ‘super connector’ role The exploratory phase refers to a period during the earlier years of the BRI policy, around 2013-2016, when both the Chinese government, Hong Kong government and business pondered about the configurations of the BRI policy and how Hong Kong fits in. It culminated with the formulation of the ‘super-connector’ role for Hong Kong by the HKSARG in the Chief Executive’s Policy Address in May 2017, after promoting the concept for a couple of years. In 2015, the Vision and Actions document was released as the first official elaboration on the aims and plans for BRI, which briefly states that “we should leverage the unique role of overseas Chinese and the Hong Kong and Macao Special Administrative Regions, and encourage them to participate in and contribute to the Belt and Road Initiative" (NDRC et al., 2015). Parallel to this official statement were calls from various policy and professional quarters for Hong Kong to play a prominent role, especially in its role as an international finance centre (Ba & Wang, 2015; Lam & Chen 2015). However, discussions on Hong Kong’s dimming advantages over rising cities in mainland were also in circulation. For example, it is often cited that Hong Kong’s share of national GDP has fallen from 20% in 1997 to 3%. Hong Kong is no longer an indispensable platform to link the Mainland with the world. Shanghai has been rapidly gathering its might as an emerging regional financial hub, and so on (Woo 2020). In May 2016, Zhang Dejiang, the chairman of the Standing Committee of the National People's Congress, encouraged Hong Kong business leaders to participate in the BRI when he spoke at the Leaders' Roundtable of the Belt and Road Forum in Hong Kong. There were, still, little guidance as to the specific roles the Hong Kong business, from the perspective of a firm, was to play and what actions to take, however. A few months later, a senior central official (respondent 025) met industry leaders at a roundtable seminar in Hong Kong. Participants asked what Hong Kong business is expected to do for BRI. In response, the official stressed the need to play on market rules, so that Hong Kong business leaders will be the best placed to make their decisions regarding action plans. Attitude within Hong Kong community was ambivalent, as people generally do not see how they can benefit, as individuals, from the initiative. According to a survey of 712 Hong Kong citizens by Hong Kong Institute of Asia-Pacific Studies (2018), 44% of the respondents agreed that, overall, BRI would bring net benefits to Hong Kong’s economy while 10.7% were negative. Importantly, two-thirds (67.0%) of the respondents expected little economic benefit to themselves and their families from BRI, and 60% believed that businessmen and professionals are major beneficiaries.

Our interviews with professionals in several sectors find that most businessmen and professionals see the initiative as a state-led strategy, and have little idea how to join it effectively or should they bother. Even the more enthusiastic players who have invested in exploratory market studies, usually the industry leaders, stressed the need to await more elaborate guidance and supportive services from government before proceeding with business decisions (Li et al. 2016). The HKSARG took a proactive step by announcing the role of super-connector in the Chief Executive’s Policy Address in 2017. The role emphasizes the traditional functions of Hong Kong as a gateway between China and the rest of the world, and elaborates a number of key dimensions for further development in the context of the initiative, including the further development of the IFC function and dispute resolution facilities.

Reflections on BRI risks and Hong Kong as soft power hub

After a few years of execution, a number of Chinese investment projects in B&R countries started to cause alarms over financing pressures, political and legal risks, and difficulties in winning popular support in the host countries (Yicai 2016). Financing is getting increasingly unsustainable from both domestic (Chinese) and host country perspectives, given the massive scale of the BRI infrastructure projects and long years of return. China is alleged for offering unaffordable debts for large infrastructure projects that cause unsustainable financial burden for the B&R countries, many of them have vulnerable finances and weak governance. Its low disclosure of the criteria in offering loans and the total amount of loans comes under close scrutiny (Hurley, Morris & Purtelance 2019; Lagarde 2018).

At the same time, weak project execution and communications leads to the failure to gain support of the local community. This is important as it calls into question whether the BRI projects are actually benefiting the local population. While increasingly Chinese companies have taken measures to improve their community engagements, these efforts are often treated as part of a public relations exercise, so that host stakeholder perspectives have had peripheral impacts on project governance at the best (respondent 370, 373, Myanmar, 2019; respondent 343, Sri Lanka, 2019). For example, the suspension of Myitsone Dam project in Myanmar in 2011 due to strong public resistance arising from concerns over environment and culture illustrates the importance of “360-degree” feasibility study and adequate consultation as part of project planning and design.

The flood of critiques arising from these risks has highlighted a possible role of Hong Kong as well as the specific areas requiring intervention. In the case of financial sustainability, much hope was laid upon Hong Kong to supply sophisticated market talents well-tuned to international rules and professional service providers who can help China diversify the investment channels and improve performance of B&R projects. Specific ideas sprang up, for example, on the prospect of developing a Chinese credit rating system with international recognition in Hong Kong, and seeking professional inputs from Hong Kong to the management the newly established Silk Road Fund (respondent 176, 003a, Beijing, 2016). The central government would like to see Hong Kong professionals help raise the engineering standards of Chinese construction projects, by for instance enhancing a priori feasibility 25 assessment and improving the oversight of the construction process (respondent 025, Beijing, 2017).

A report analyzing the soft power of global cities (Deloitte 2016) estimates around 0.76 million professionals working in high-skilled knowledge-based industries in Hong Kong, coming from 39 nations and conducting business in 79 countries. Given the large potential there are high expectations for Hong Kong professional services to take part in BRI, and many stakeholders in China we talked to urged Hong Kong to take a more active role. Some have expressed frustration for what they described as a “lack of enthusiasm to explore B&R market”, and “inadequate understanding of Chinese policy on BRI” (respondent 023, 028, 143, Beijing, 2016-17). However, the reality is more nuanced, as we find that the Hong Kong branches of Chinese enterprises also have had rather limited collaboration with other Hong Kong business and professional services (respondent 119, 206, Hong Kong, 2017-18). Hong Kong professionals are seldom invited to provide inputs during the early phases of project decision making, and mostly contribute to the projects’ technical dimensions in the execution phase (respondent 205, 282, Hong Kong, 2018-19). However, participation in the early phases is critical to pre-emptive risk management and the design of an inclusive, “360-degree” approach to project planning and execution.

An associated dimension is the role of government and the differences in government- enterprise in Hong Kong when compared to China. There is an expectation that Hong Kong business will respond enthusiastically to the BRI policy and call for participation. However, as s.3.1 indicates, there is a lack of clarity in the scope and objectives of BRI. Questions from business seeking clarifications also often remain unanswered. The ‘super-connector’ concept articulates a broad vision of the role of Hong Kong but lacks specific details on how the role will be played out from the perspective of the professional service providers (Chan, 2016). Our respondents from influential policy think tanks in Beijing and Guangdong also called for more grounded measures from the HKSARG to facilitate the participation of Hong Kong private sector business and professionals (respondent 141, 176, Guangzhou and Beijing, 2017).

Hong Kong in Greater Bay Area (GBA)

The exploration of a pathway to enhance Hong Kong’s participation in the BRI leads, in part, to the deepening of discussion over the Greater Bay Area concept since 2017. During 2017, more thoughts are put to identify the support measures to encourage a larger role of Hong Kong in the BRI (respondent 025, Beijing, 2017). The GBA concept has its first appearance in national documents in the Visions and Actions in 2015, which describes the GBA as a cooperation platform between China’s south-eastern coastal region and Hong Kong and Macau in the context of BRI execution. In the 2017 Report of the work of the Government, released at the National People’s Congress annual plenum in March 2017, the development planning of GBA is described as part of a scheme to enhance the position of Hong Kong and Macau in the national economy. Then in the 2017 Arrangement on Advancing Hong Kong's Full Participation in and Contribution to Belt and Road Initiative, which is signed at the presence of President Xi Jinping, it is written that GBA presents opportunities for Hong Kong “to expand its economic and social development space, to enhance its status and function in the country's

26 economic development and opening-up”, and that GBA is to “develop as a significant supporting area in B&R”. The GBA is to serve a strategic role: as a priority area for Hong Kong to deepen collaboration with mainland and an amplifier for expanding Hong Kong’s influence on the implementation of BRI and national development (Li & Kwok 2019).

It is clear that Hong Kong is accorded with higher strategic status in the top-level policy design, in which the GBA plays a major part. The GBA vision rests on the potentials of its characteristic “one region, two systems”: institutional differences between the “two systems” can serve as a driving force of innovations and reforms (Li, Luo & Yang 2020). The GBA can thus foster its soft power and promote institutional reform through close collaboration between Guangdong and Hong Kong. Notwithstanding the vision, however, many have continued to understand GBA as a master plan of regional economic integration and development. A free flow of factors of production is, in this view, considered of paramount importance for allocative efficiency. In this light the heterogeneous systems and institutions across Hong Kong, Macao, and the nine mainland Chinese cities pose barriers for efficient integration, which demands to be diluted if not totally eliminated (Zhong & Hu 2017).

In September 2017, a group of policy researchers came to Hong Kong to seek local inputs for drafting a development plan of GBA. The regional economic cooperation paradigm was still predominant and questions focused on industrial division and cooperation. For that, we shared our recently published policy paper on Greater Bay Area (Li & Li 2017), which argues for an alternative vision for GBA which focuses more on the contributions of the unique institutions and soft skills in Hong Kong and Macau. The Outline Development Plan for the Guangdong- Hong Kong-Macao Greater Bay Area is finally issued in February 2019, after another 18 months. We understand subsequently that our suggestions have been incorporated in the reformulated plan (respondent 123, Beijing, 2019).

To sum up, the expectations for Hong Kong in the BRI have developed, and changed, over the past few years. Three phases are identified, from exploratory, reflective, to consolidation around the GBA strategy. The changes in central expectations and policy are in part stimulated by broader BRI developments, e.g. risks, and in part by feedbacks from Hong Kong business and society. The current vision for Hong Kong’s role centres around the Greater Bay Area, which we argue should be seen not as a master plan for regional economic development or integration, but a platform for institutional reforms and innovations leveraging upon the unique advantages of “one region, two systems”. The objective is to foster the development of soft skills for better sustainability of the BRI and national, and regional, development.

3.3 Hong Kong’s role in BRI financing

The third group of findings in this Study focuses on the role of Hong Kong as an IFC in BRI financing. As one of the “five areas of connectivity” laid down in the Vision and Actions of the BRI promulgated in 2015, “facilities connectivity” involves infrastructure constructions such as ports, railways and roads which are of massive scale that require huge amount of funding. However, funding from host countries, private investors and multilateral institutions is limited

27 due to the backward economic development of the B&R countries, as well as the perceived high risk of these infrastructure projects. The lack of funding results in huge funding gaps.

As the initiating country of the BRI, China has assumed the role of a major funding source in BRI projects. For example, China has accounted for nearly half of the USD 100 billion in kickstarting the Asian Infrastructure Investment Bank (AIIB). China also invested another USD 40 billion to launch the Silk Road Fund, which increases to USD 55 billion after the pledge of an additional 100 billion RMB in April 2019. Together with other development funds that China initiated or participated in, Beijing had pledged 201.5 billion USD to various projects worldwide (UNDP & CDB 2019). However, as the number of B&R projects increases, it is difficult for China to undertake most of the capital investment. At the same time, China has also become the main contractor of the B&R projects due to the strong infrastructure capabilities of the Chinese enterprises. This leads to severe international criticism about China unfairly benefitting from a dual role of investor and contractor.

To alleviate the financing difficulties, Hong Kong as an important international financial centre is expected to play a key role in BRI financing. Specifically, according to the “Arrangements for Advancing Hong Kong’s Full Participation in and Contribution to the Belt and Road Initiative” (the Arrangement) (NDRC & HKSARG 2017), “all main stakeholders (including investment and financing parties and project operators) are encouraged to cooperate through the platform of Hong Kong in providing the Belt and Road Initiative with the funds necessary and diversified financing channels, including listing, syndicated loans, private equity funds, bond financing, and other services.”

Given such expectations, the research team through in-depth interviews with different stakeholders8 examines a) the government’s policies with regard to financing B&R projects; b) how the government assesses and responds to the enterprises’ needs; c) the views of enterprise management on investment in B&R projects and their comments on financial services in Hong Kong; d) how the financial services in Hong Kong may support B&R; e) what are the expectations and recommendations for the financial service sector and the government. Our findings are summarized as follows.

Hong Kong’s competitive advantages

Hong Kong has been one of the world’s top three financial centres for years but recently dropped to the sixth place according to the report of the Global Financial Centre Index GFCI 27 issued by the British Z / Yen Group and the China Development Institute in 2020. The fall in ranking is possibly due to the weakening of Hong Kong's role under the China-US trade war and the social unrest in Hong Kong since the second half of 2019 which affected the global perception of Hong Kong. However, Hong Kong still ranks third in business environment and human capital for the Ranking of Competitiveness Sub-indices and in professional services in

8 The stakeholders interviewed include government agency executives related to the BRI, experts and scholars from research institutions; project managers of enterprises in Mainland China, Hong Kong and overseas directly involved in the BRI, as well as institutions and practitioners of professional services. 28 the Ranking of Industry Sectors Sub-indices (‘The Global Financial Centres Index 27’ 2020, pp. 10, 37). Hong Kong business respondents are aware of their competitive advantages which attract mainland companies to “go global” through Hong Kong.

“The strength of Hong Kong lies with our institution and integrity. Businesses come to us because of our integrity. Since business owners from China may not prefer to deal with lawyers, accountants, or even the approval department in the investee countries, they look for us to act as intermediaries.” (respondent 102, 101, 154, 247)

To promote the participation of Hong Kong financial sector in the BRI, the Hong Kong Monetary Authority established the Infrastructure Financing Facilitation Office (IFFO) in 2016. By encouraging different institutions to join, the Office has assembled a strong team of partners and organized activities such as training workshops, summits and investor roundtables to establish a platform for major stakeholders to collaborate and join hands in mega infrastructure investment and financing projects. In addition, Hong Kong is a member of the AIIB. However, since Hong Kong still adheres to the principle of ‘big market, small government’, participation in the BRI is still largely regarded as a voluntary act of the private sector.

Expectation and Gaps

There are keen expectations from the mainland government officials, experts and scholars on how Hong Kong can help China manage and finance B&R projects. A number of interviewees (respondent 003a, 143, 027, 028 116, 143-152 and 193) believed that given the large number of B&R projects, there is a shortage of professional talents. Hong Kong financial service professionals should participate more actively in B&R projects such as conducting feasibility study and financial budgets for B&R projects. As for Hong Kong enterprises, they can actively explore suitable projects to invest in countries along the B&R whereas the Hong Kong government should take the initiative to play a leading role in investing in good projects by better utilizing the foreign exchange reserves in Hong Kong. At the same time, to facilitate the debt financing mechanism and reduce the borrowing costs in B&R projects, Hong Kong can make use of its advantages and credibility to establish a credit rating system specifically adapted to the BRI. More importantly, though Hong Kong ranks top globally in IPO fundraising for mature companies, Hong Kong should establish new channels for companies with B&R projects to obtain funding.

In response to the above expectations, a good number of Hong Kong senior professionals and business leaders (e.g., respondent 031, 101, 154, 247) shared their reservations or suggested practical constraints to us. Some of these are: (1) feasibility study and financial budgets may not be important for projects that were approved by reckless political decisions. (2) Despite the demand to ease the shortage of professional talents, there is a lack of formal channels for enterprises to recruit professionals from Hong Kong. (3) Hong Kong companies are not keen on “benchmark projects” as they are more profit-oriented while B&R projects are perceived to

29 be more risky and may not be profitable. (4) Given the prudent financial management principle and the recent political situation, it is difficult for Hong Kong government to use the reserves to invest in B&R projects. (5) To establish a new credit rating system in Hong Kong will require a protracted process to build up reputation through cases, and is thus not a realistic target in the short-medium term.

Besides the expectation gaps, it is perceived that communications between Hong Kong and the Mainland remains at the high level which is abstract and non-operational (respondent 176). To succeed, frontline and middle-level works are vital. Unfortunately, it seems that the central and Hong Kong governments have not focused on creating the tangible incentives to encourage their participation, apart from propagating general calls for support. From a more practical perspective, some interviewees suggested that Hong Kong can specifically participate in the BRI at different levels: a) at the strategic level, Hong Kong can collaborate with the Mainland counterparts to conduct more studies to enrich the understanding of the B&R; b) at the action level, Hong Kong enterprises and professional service bodies should strengthen their connections to and share experiences with the Chinese to facilitate project implementation; c) Hong Kong may provide more training to mainland peers to help capacity building; and d) Hong Kong should take the initiative to get involved in national projects, actively give suggestions to the central government what policies are needed.

However, a number of Hong Kong interviewees including those from business sector and government financial officials are less optimistic about new business opportunities for Hong Kong’s financial services sector. One reason is that professional services always ‘follow’ the path of enterprises. Only when enterprises were willing to invest in countries along the B&R, professional services would have more opportunities, but not vice versa. Given that B&R projects are considered as highly risky, enterprises are not keen on such investment. In addition, the Mainland has tightened money supply since 2017, most enterprises are struggling for funding their main businesses, it is unlikely that they would have incentive to “go out” unless there are substantial preferential policies such as special funding support.

Where there's a will, there's a way?

From our research, we realize that stakeholders among China and Hong Kong have different assessments on the role that Hong Kong could play in supporting BRI financing. While respondents from Mainland China and overseas are highly appreciative of the strengths of the financial sector in Hong Kong, including its ability to raise funds in the stock market, free flow of assets and a strong critical mass of professional financial support services, constraints against wider participation of Hong Kong seem to persist. Nonetheless, the professionals and entrepreneurs we talked to in this Study are in broad agreement that Hong Kong’s indisputable status as a world-renowned financial centre is impeccable in assisting the BRI vision to fruition.

In that spirit we have formulated several proposals to further develop the IFC functions of Hong Kong, and believe that Hong Kong’s participation in the creation of an innovative and sustainable B&R investment and financing system, and the development of a diversified

30 international credit investment rating system would achieve win-wins for all interested parties involved. The proposals will be outlined in s.4 (Policy implications and recommendations) below. For details also see Part 2, chapter 3. Hong Kong’s International Financial Centre role will be strengthened with a broader group of players and a corresponding robust governance and regulatory framework to ensure project sustainability.

Global economic downturns and Hong Kong’s role

The global economic environment has worsened significantly since the lockdown of economic activities due to worldwide coronavirus pandemic in 2020. Given the economic downturns and the increased risks for all credits, especially loans to B&R countries make it more difficult for B&R projects to get financed in a free market.

Hong Kong’s role in the creation of an innovative and sustainable B&R investment and financing system with a new credit rating system tailored for B&R projects has hence become more important. However, we cannot downplay the difficulties for Hong Kong to participate in BRI projects. Hong Kong faces a lot of challenges such as the forthcoming National Security legislation, deep socio-political divisions and unsettling social unrests amidst a range of deep- rooted issues.

More importantly, the possible financial sanctions on Hong Kong by the US due to the legislation of national security in Hong Kong, as well as the escalation of US-China tension may seriously affect the status of Hong Kong as an international financial centre. Hong Kong may need to creatively re-position its role as an international financial centre under the new economic and geopolitical environments.

3.4 Hong Kong accountancy services and BRI

The fourth group of findings focuses on the role of Hong Kong accountancy professional services in the BRI. As a major constituent sector of the ‘professional and producer services’, one of the ‘four pillar industries’ in the economy of Hong Kong, the accountancy profession has accumulated extensive practical experience in acting as a bridge between China and the West for long in the past decades. With the development of BRI, we are interested in exploring how the accountancy practitioners view the BRI opportunities and whether they are ready to meet the new challenges and seize the opportunities.

To get a systematic understanding of the professional accountants’ views on the future development of the profession related to BRI and the challenges they face, we collaborated with the Society of Chinese Accountants and Auditors (SCAA) to conduct in-depth interviews with senior accountants and online questionnaire survey of accounting practitioners from Hong Kong and overseas in 2018.

Hong Kong accountancy profession’s bottlenecks

According to our 2016 survey, the accountancy profession has encountered development bottlenecks.9 Though the income level of professional accountants in Hong Kong is well above average, their views on the prospects are not optimistic. The problems faced by the profession were not limited to worsening external economic conditions due to China-US trade dispute and fierce competition, but also related to internal management and stricter regulatory oversight. Factors that most affecting the development of the industry include long working hours and high turnover rate. In terms of job satisfaction, there was a U-shaped pattern with newcomers and senior professional accountants at the high ends of satisfaction, while middle-level people at the bottom.

In that survey, the respondents were also asked to rank the strategies proposed by industry practitioners that may foster the development of the profession. Out of the 11 strategies, ‘Exploring the Belt and Road Business Opportunities’ was ranked the lowest. Many respondents believed that though BRI may bring great opportunities, it was difficult for them to grasp. The lack of understanding of the countries along the B&R has affected the role that Hong Kong could play.

BRI provides the opportunities for the profession to transcend its bottlenecks?

Though the 2016 survey indicated that stakeholders in the accountancy profession seemed to be pessimistic towards exploring B&R business opportunities, our in-depth interviews and survey in 2018 show a subtle change that stakeholders, in particular those at senior level, have more positive views on the overall development of BRI as well as the economic impacts on the regions and involved institutions. Specifically, the limited scope for business development in Hong Kong (respondents 003 and 157) and China (respondent 161, 162 and 163) drives them to explore new businesses in other countries. The areas of business involved in B&R projects may include tax consulting, due diligence before M&A, corporate secretarial services and business strategy recommendations. A senior management from one of the top 10 accounting firms (respondent 163) shared his success experience on providing ‘one-stop’ services to his clients who participated in BRI projects. However, some interviewees (such as respondent 002, 171 & 172) believed that their corporate advisory services and IT consulting business in Hong Kong are still promising despite the stagnation of traditional accounting services. In addition, their professional knowledge may not be applicable to countries along the B&R, and the risk of ‘going global’ is high.

Regarding the comparative advantages of Hong Kong professional accountants, high level of language proficiency, global horizon, flexibility in handling tasks; integrity and professional conduct, and good technical skills are highlighted by interviewees. Among these advantages, integrity and professional conduct were unanimously agreed by all interviewees and ranked

9 Li, LC, Wu, LL, Chan, HM, Kam, CP, Wu, RS & Li, KO 2017, ‘香港會計業正處瓶頸期(Hong Kong Accountancy Profession in the Bottleneck)’, in Li, LC, Wu, LL, Chan, HM & Kam, CP (eds.), 突破瓶頸：香港會計業(Transcending the Bottleneck – Hong Kong Accountancy Profession), City University of Hong Kong Press, Hong Kong, pp. 1-14. 32 top by respondents in the survey. These soft powers are important as many participants of the BRI projects are often criticized for violating local regulations and lack of professional conduct.

On the other hand, there are difficulties and challenges for Hong Kong professionals to participate in B&R projects. Language barriers, unfamiliarity with the local accounting and tax regulations, differences in culture and religion of the B&R countries are the common difficulties mentioned by interviewees. Respondents’ self-assessment of their capabilities to participate in BRI also show similar shortcomings. However, these challenges are not unmanageable. For example, interviewees who are experienced in B&R projects (respondent 125, 126, 162 and 163) indicated that many people in the B&R countries can communicate in English and it would never be too late for practitioners to learn the languages of the B&R countries. Religious and cultural issues can be solved given time to establish mutual understanding and respects as well as through long-term interactions.

Hong Kong’s role in BRI

Our survey also specifically asked respondents to what extent they agreed that Hong Kong could play the roles listed in the “Arrangements for Advancing Hong Kong’s Full Participation in and Contribution to the Belt and Road Initiative” (the Arrangement). The results indicate that respondents agreed on the proposed roles of Hong Kong, especially in promoting the internationalization of RMB, providing a diversity of financing channels for B&R and as a centre for international legal and dispute resolution services. These results are consistent with our in-depth interviews with senior accounting practitioners. Many interviewees believe that Hong Kong has become a hub for Chinese capital inflows and outflows as China has not liberalized its capital account yet. Outward investments from many Chinese enterprises channel through Hong Kong and vice versa because Hong Kong’s financial infrastructure is mature, currency is freely convertible and circulated, and a sound legal system is maintained.

In summary, although BRI has aroused much controversy internationally, interviewees and questionnaire respondents generally hold a neutral to optimistic view about BRI. Among them, the views from the senior respondents are more positive. In addition, the interviewees have high expectations for Hong Kong's role in BRI. Most respondents agree that Hong Kong can help China move further internationally in terms of investment, financing and internationalization of RMB. Though optimistic, respondents also have provided objective assessment of their abilities, pointing out their shortcomings, especially in comprehending the tax laws and regulations in countries along the B&R, as well as the lack of soft skills such as knowledge of the local languages and cultures.

Internationalization of the BRI is not only a way to improve the profession’s development in the future, but it should also bring new impetus to the strive of breaking through the bottleneck of professional services in Hong Kong. The key is that practitioners in the profession need to remedy their own weaknesses so that they could meet new challenges and grasp new opportunities. The adjustment of policies and business behaviours involved should be the common direction of endeavour for the government, the industry and the education sector. 33

3.5 Hong Kong as BRI dispute resolution hub

The fifth group of findings in this Study focuses on Hong Kong as a hub for BRI dispute resolution due to the increasing demand for legal services for dispute resolution since the launch of BRI in 2015. Given the credibility as well as the advantages of internationalization and professional talents of Hong Kong, Justice He Rong, Vice-President of the Supreme People's Court of the People's Republic of China (PRC) openly supported Hong Kong’s role as an international dispute resolution centre along the BRI (Supreme People’s Court of PRC 2016). In turn, Mr. Rimsky Yuen, SC, JP, former Secretary for Justice of Hong Kong, described BRI as a ‘historic opportunity’ that can help to widen the market for Hong Kong legal professionals in his public speech in September 2015, two months after the “About the People's Court as ‘One Belt One Road’ Several Opinions on the Construction of Providing Judicial Services and Security” was published.

In order to explore the views of Hong Kong legal professionals on the future development of the profession in relation to BRI and the challenges they face, we have categorized Hong Kong legal professions into 4 groups based on their professional qualifications: lawyers, barristers, arbitrators, and mediators and conducted interviews with 39 respondents from the abovementioned professionals, together with government officials and senior managements from professional bodies.

Identifying the Gap

General speaking, almost all respondents showed a keen interest in BRI and their affiliated organizations have actively promoted or organized capacity building activities for practitioners on BRI related international law and dispute resolution knowledge.

However, despite the strong prospect of BRI for the legal sector and the interest in exploring opportunities for participation, the research team finds that barristers and solicitors, especially for those who had not been accredited as arbitrators or mediators, had relatively low participation in BRI. Among 26 legal professional respondents, only seven declared having been involved in BRI related cases in their practices. A possible explanation of the low actual participation amongst the core players of the legal sector (barristers & solicitors) is there is actually no urgent demand for them to explore more business opportunities from the BRI or they did not have any opportunities to participate in BRI related cases. Many respondents (029, 106, 107, 108, 294, 259, 414) believed that the nature of legal services is “act upon referral” with characteristics such as “personal in operation” and “client led”. Most of Hong Kong practitioners do not have sufficient B&R clientele networks.

Among the seven respondents who had been involved in BRI related cases in legal practice, four of them are accredited as arbitrators or mediators. We found that arbitrators or mediators have higher chance to participate in dispute resolution services under BRI. Solicitors or barristers without accreditations could only participate in the BRI through litigation which is

34 less preferable due to the longer time required for litigation procedures, as well as higher uncertainty in enforceability (respondent 270).

Strengthening Hong Kong’s Position as an Arbitration Hub

Hong Kong has lots of competitive edges in the provision of arbitration services due to its long history of development: a) the jurisdiction has joined the New York Convention on the Recognition and Enforcement of Foreign Arbitration Awards for decades and applied the international standards by adopting the UNCITRAL Model Law on International Commercial Arbitration in the provision of services; b) the local legal market is open to international competition. A large number of foreign experts can base in Hong Kong for legal practicing and obtaining additional local licenses when necessary; c) most of the non-Chinese international arbitral institutions can administer cases and issue awards freely in Hong Kong, as compared to that in mainland China. Yet, the gap is narrowing as further development is expected for the permission of Chinese authority to enforce the awards.

In order to grasp the BRI opportunities, Hong Kong government should develop some policy incentives to enhance the legal services support to business transactions with the B&R countries, including provision of office rent discount to increase the presence of law firms, in the forms of representative office, or joint office with an existing firm based in Hong Kong, along the B&R countries. In addition, there is an urge to provide more diverse professional development programmes for the local talent pool so as to enhance their knowledge about the cultures, languages and legal systems of the B&R countries. Hong Kong government, together with the professional bodies, should put more efforts in promoting its value for resolving B&R disputes and raising its visibility via involvement in major global arbitration events. In this regard, better communication with Mainland China in applying new technologies to assist dispute resolution becomes another vital move.

Constructing an Effective Mediation Regime in the Guangdong-Hong Kong-Macau Bay Area

The BRI is an unprecedented attempt of economic integration, encompassing more than 68 countries. The cross-jurisdictional nature of these disputes generated by BRI economic activities gives parties limited dispute resolution options as the national court is generally not the ideal forum. Mediation demonstrates its strength as it is not based on any particular set of national rules.10 So long as parties agree on a basic mediation framework, the dispute resolution process can be as flexible and inclusive as parties want it to be. This fits particularly well with BRI disputes, which usually involve many different states and private parties.

The Guangdong-Hong Kong-Macau Bay Area (GBA) is one of the fastest growing economic regions in the world while Hong Kong remains a steadfast and robust international financial centre and service hub with its high ranking in rule of law. To date, there is only one cross- border mediation centre namely The Mainland-Hong Kong Joint Mediation Centre (MHJMC)

10 Wang, GG, Lee, YL & Leung, MF (eds.) 2017, Dispute Resolution Mechanism for the Belt and Road Initiative, Zhejiang University Press, Hangzhou, pp. 346. 35 that deals with disputes connected to both Hong Kong and Mainland China. MHJMC is cost effective to integrate the various mediation systems in the GBA, though there is still room for further development to enhance its uniformity and efficiency in the mediation of cross-border disputes. In this regard, we suggest to re-calibrating the pre-litigation mediation procedure for cross-border disputes in Chinese courts, extending the pre-litigation mediation procedure for all cross-border disputes in Guangdong, extending MHJMC to cover Macau and/or the establishment of a GBA Mediation Centre/Association and Steer Committee for Mediation in GBA with unify protocols.

We believe the success of the future GMH Bay Area Mediation Centre can play a very good model for BRI mediation. Given China’s leadership position in BRI, it is recommended that a “BRI Mediation Association” be established (and seated in China). The association can play the role of unifying ADR norms in BRI disputes and promoting policies that are conducive to BRI disputes resolution.

The way forward: ideas for concrete steps to meet current challenges

Hong Kong’s legal infrastructure has been well developed and is suited for BRI disputes resolution. There is unambiguous policy support at both national and Hong Kong regional levels. However, uncertainty exists for such policy as national support for Hong Kong to become an international dispute resolution hub to be converted into an enforceable piece of legislation. In addition to promulgation of the policy, the intention and willingness of the Mainland to implement the policy are very important. Continuous confrontation between Hong Kong and mainland China will no doubt discourage the Mainland to proactively implement those policies. Hence, in addition to the specific policies mentioned above, what Hong Kong also needs to do is to resolve its political instability and improve its relationship with mainland China. Those are political and public governance issues.

Specifically speaking, the HKSAR Government should, by using whatever means possible, engage those people who distrust the Chinese Central Government in a dialogue with itself and the Chinese Central Government so as to enhance mutual trust between Hong Kong and mainland China. One possible way to achieve this is to persuade the Central Government to show its goodwill first by taking concrete actions to support Hong Kong to become a dispute resolution hub under the BRI.

Given that most BRI projects have been undertaken by mainland Chinese companies, especially its state-owned enterprises, they will choose Hong Kong as their forum for BRI dispute resolution if the Central Government gives such an indication. One essential reason that the policy to make Hong Kong an international hub for dispute resolution has not materialized is that the HKSAR Government has failed to convince Chinese Central Government to take concrete actions to make Hong Kong an internationally leading dispute resolution hub under the BRI, albeit broad policy pledges.

While Hong Kong should continue to improve its legal infrastructure relating to cross-border dispute resolution, it should invest more in political persuasion in mainland China and B&R countries and make serious efforts to enhance mutual trust between Hong Kong and mainland

China in order to remove concerns of business community caused by political instability in Hong Kong. Political skills in convincing both Chinese Central Government and state-owned enterprises to choose Hong Kong as the forum for resolving disputes under the BRI is more important and determines whether Hong Kong can get a fair share of dispute resolution business arising from the BRI.

3.6 B&R Sustainability and Role of Hong Kong

The sixth group of findings of the Study is about the role of Hong Kong with regard to enhancing the sustainability of B&R projects. Since the launch of the BRI in 2013, a number of Chinese companies have invested tens of billions of dollars in B&R countries to build a myriad of infrastructure, but facilities connectivity has not brought about the expected "people- to-people bonds". In contrast, there has been continuous waves of condemnation against the China-led initiative. One main reason is that enterprises executing the projects on the spot did not adequately address the needs and concerns of the local people during the construction process. For example, there are serious doubts about the various risks and issues brought by the Chinese investment activities, ranging from environmental pollution and degradation, unmet community needs and cultural differences, to suspected corruption and territorial threat. We have identified the major risks affecting the sustainability of B&R projects, and formulated a pathway whereby better environment, social and governance (ESG) standards should help to mitigate the project sustainability risks and the role of Hong Kong professional services in that regard.

Sustainability risks of B&R projects

Insufficient information disclosure and lack of transparency often lead to public suspicion and negative perceptions. Respondents from a leading international consultancy firm and a diplomat (respondent 367, 256) shared their routine frustrations in searching for information on the Chinese government websites. People from different countries have difficulties in accessing relevant information on BRI projects in their respective countries. In international media discussions, the BRI is often described as a state-led strategy with controversial geopolitical and economic objectives. The strong role of the government in BRI is broadly acknowledged by Chinese officials and interviewees from business, state or private, from its initiation as a national development strategy (respondent 23, 2017), to the organization of financing and planning of projects (respondent 003a, 2016), and execution and assessment (respondent 27, 2019).

The close association of the government sometimes leads to unnecessary speculations at the time of project adjustments. When a B&R project is perceived to be the Chinese government’s official investment, any suspension or termination of a project due to project-related considerations would be interpreted as a breakdown of the political bilateral relations between China and the host country (respondent 256, 2019).

Further, two professionals with business along B&R countries (respondent 160 and 367) also shared their reservations about China's true intention for international participation, because the Chinese government or enterprises often impose restrictive clauses when signing contracts

37 with foreign countries to require the hire of a Chinese contractor for Chinese funded projects. For example, according to a study, 89% of 178 Chinese-funded transport infrastructure BRI- related projects in 34 countries go to Chinese contractors.11 There is suspicion if the Chinese enterprises are given favourable treatment by the Chinese government, and that China runs the BRI as a closed club rather than an open platform for everyone, as emphasized in the official promotion of BRI.

More importantly, Chinese enterprises are being criticized for paying lip service to the interests of local communities and are insensitive of cultural differences. Environmental protection measures are minimal, posing grave concerns of social and environmental impact of the BRI projects (respondent 120, 261). Particularly, while the investments in the sectors of energy, mining and transport infrastructure are huge, these B&R projects are often unable to generate immediate direct benefits to the local communities. Those mining and road construction projects may damage the local environment or require relocation of communities, thus causing life disruption and resentment.

Facing complaints from local communities in the host countries, the Chinese enterprises executing the projects responded variably. From discussions with various stakeholders, we note that there are views which display a higher level of readiness to acknowledge the differences in culture, expectations and managerial approach, which breed tension and conflicts, and see the need for more communication and flexibility to improve mutual understanding and cooperation. A more prevalent view, often found amongst the large state-owned enterprises and officials, would insist the benevolent nature of the investments to the host country and attribute the public resistance to Chinese projects to domestic politicking in the host countries.

How to manage or mitigate the sustainability risks

One feasible way to contain this trend of escalation of tension and sustainability risks is to raise the ESG standards in BRI projects. International standards of ESG require more detailed planning, better communication with the local people and more consideration of views from diverse stakeholders as part of the project design. Project performance will hence benefit and the intended BRI vision of sustainable co-development will be better attained.

Based on the concepts and sub-items of "environmental", "social" and "governance" involved in ESG defined by the United Nations, we postulate that the above criticisms of unsustainability of the B&R projects could be mitigated by strengthening ESG standards. For example, according to the ESG’s “market communication” guidelines for the social area, effort put into enhancing the external publicity and communication of the B&R projects should be able to avoid many of the negative perceptions and misunderstanding due to lack of transparency and credibility. Following the ESG requirements of “customer satisfaction” and “government- community relations” can help lessen the tension with local people, which will also improve the performance in another ESG standard, namely the protection of “human rights and the interests of the original inhabitants”.

11 https://www.ft.com/content/76b1be0c-0113-11e8-9650-9c0ad2d7c5b5, accessed 1 June 2020. 38

To mitigate the perception that the Chinese government dominates all the B&R projects, and that Chinese companies tend to undertake the whole project, arrangements should be in place to ensure more participants from the host and other countries in the project execution. This will involve changes to the governance of the Chinese enterprises, especially state-owned enterprises. For example, the companies need to ensure that there is no “anti-competitive behaviour” or violation of “anti-bribery and anti-corruption” according to the ESG requirements.

To overcome the challenge on corporate social responsibility, it is important for Chinese enterprises to observe closely the environmental guidelines of the ESG that the projects would not cause damages to the environment and ecology.

Role of Hong Kong

How should the enterprises participating in the BRI be facilitated to implement ESG? Hong Kong has a solid foundation in areas such as project management, community governance, environmental protection and corporate publicity. What kinds of changes have been triggered to the belt-road countries through the investments of the Hong Kong enterprises?

From the observations of our field visits to various belt-road countries, we observed that positive changes have been made by Hong Kong enterprises through their investments and professional services. For example, a Hong Kong company has provided employment opportunities for 30,000 local workers and hence raised the living standard of their families in Phnom Penh since 1992. The company has also established effective communication with the labour unions and has introduced work incentives to enhance the productivity and skill sets of workers. The company also demonstrates good practices of corporate social responsibility by participating in the infrastructure development projects such as roads and water-purifying systems for the city of Phnom Penh (respondent 398). Another Hong Kong investor in Vietnam adopted modern management and operational practices, and fostered an inclusive work culture in a linguistically diverse workforce (respondent 316).

In summary, through the exchanges with various key stakeholder groups of B&R countries in the field, we learnt that Hong Kong enterprises and professionals enjoy a good reputation locally as bearers of high international standards. Inward investment projects from Hong Kong are generally welcome and believed to bring positive spill-overs to the development of belt-road countries. Such demand in turn would undoubtedly provide more development opportunities for the professional service sector in Hong Kong. With the improvement in the quality of the B&R projects, the local people could benefit from the projects, thus leading to a win-win situation.

3.7 Overseas BRI projects: opportunities for Hong Kong After reviewing our key findings on the defining features of the Belt and Road Initiative, the changes in the expected roles of Hong Kong in BRI policy circle and assessments in four major areas of professional services respectively, we come to the seven and final major group of findings in this Study: opportunities for Hong Kong from the perspectives of overseas BRI

39 projects and host countries where we visited during the Study.12 The objective of conducting the overseas research visits serve three purposes: (1) we can cross-check and validate our findings from Hong Kong and China through on-the-ground observations and discussions with BRI stakeholders in B&R destinations; (2) we can deepen our understanding of the related issues by bringing in the views of the B&R countries – from government, local business, local academics to the local public; (3) most importantly, our presence on the site makes it easier to engage in discussions to explore into the roles and prospective opportunities for Hong Kong, especially since the international discussion on BRI has not focused on Hong Kong investment.

We have enclosed the reports of four overseas research cases in Part 3, covering Cambodia, Vietnam, Sri Lanka and Myanmar. With the exception of Sri Lanka, where we paid a short preliminary visit in 2018 and a 9-day visit again in 2019, all the other three are covered with a trip of a week or slightly longer duration. A compact multi-disciplinary team was constituted for each trip, and the PI led and participated in all the trips. We met and interviewed senior government officials of the host countries (sometimes to the ministerial rank level), local business leaders, key Chinese BRI players (usually large state-owned companies), Hong Kong enterprises investing there, local academics and BRI analysts, and students. We visited special economic zones/industrial parks/ports and project facilities, and talked to their managers and workers as part of field observation. We also gave seminars at local universities and talked with local students. A total of 59 meetings took place between the 4 venues. Itineraries and other details are at Part 3.

Key finding themes

We conducted preparatory background research prior to each research visit, which usually include desktop research on country profile, trade and investment with Hong Kong and Mainland China, meetings with officials from the consulates in Hong Kong, and related BRI stakeholders like Chinese companies. Post-trip follow up meetings have been conducted with relevant HKSARG bureaus and consular officials to share information and ideas, and with local stakeholders to continue the research updates and seek their comments on the draft research reports as appropriate.

Discussions in the field cover the following areas: (1) general investment environment and related policies and measures; (2) assessment and perspectives of the BRI, its opportunities and risks for the host country; (3) challenges for the foreign investors, and Chinese BRI investors and Hong Kong investors; and (4) views on the role and opportunities of Hong Kong business and professional services in the BRI projects and in the development of the host country.

China and Hong Kong as major sources of investment

Mainland China and Hong Kong have been major FDI sources in these B&R destinations in recent years, as Table 5-6 illustrate. Mainland China is the top source of FDI to Cambodia, Sri

12 Additional resources other than this SPPR project have contributed to this part of work. One notable example is a Humanities and Social Sciences Panel Prestigious Fellowship awarded by the Hong Kong Research Council to the PI in 2019, and external in-kind and other resources contributed by members of the CSHK Sustainable Hong Kong Research Hub members. 40

Lanka and Myanmar for the past decade or longer, accounting for one-fifths to one-third of total FDI value of the respective countries (Table 5). Table 6 shows the approved FDI in the more recent years, and show that leading position of China has sustained. Indeed, whilst Mainland China is the 8th top source by cumulative value in Vietnam since the opening up of Vietnam in the 1980s, Chinese FDI ranks third in newly approved FDI in Vietnam in 2018, suggesting a trend of increasing importance.

Hong Kong investment ranks second in cumulative value in Sri Lanka (Table 5), given that a major BRI investor in Sri Lanka is the Hong Kong-based China Merchants Group. Hong Kong also ranks top 2 in recently approved investment in Cambodia, Vietnam and Sri Lanka, and 4th in Myanmar (Table 6). This reflects that Hong Kong investors have been fairly active in these destinations, e.g. Vietnam and Cambodia, as well as serving as a major avenue of outgoing Chinese investment under the ‘Go global’ initiative and BRI.

Table 5 Cumulative FDI from Mainland China and Hong Kong: 4 countries

Mainland China Hong Kong Percentage Percentage Ranking Ranking (%) (%) Cambodia (1994-2019) 1 21.81 6 3.05 Vietnam (1988-2018) 8 3.94 7 5.82 Sri Lanka (2008-2017) 1 19.26 2 15.04 Myanmar (1988-2017) 1 33.14 7 2.52 Remarks: The FDI in Cambodia and Vietnam is approved amount, and that in Myanmar and Sri Lanka are actual FDI inflow.

Sources: Cambodia: The Council for the Development of Cambodia; Vietnam: General Statistics Office of Vietnam; Sri Lanka: Sri Lanka Board of Investment; Myanmar: Central Statistical Organization.

Table 6 Approved FDI from Mainland China and Hong Kong: 4 Countries

Mainland China Hong Kong Ranking Percentage (%) Ranking Percentage (%) Cambodia (2019) 1 29.26 2 9.71 Vietnam (2018) 3 14.17 2 16.79 Sri Lanka (2017) 1 36.73 2 17.31 Myanmar (fiscal 2 24.40 4 4.41 year 2017-18) Sources: Cambodia: The Council for the Development of Cambodia; Vietnam: General Statistics Office of Vietnam; Sri Lanka: Sri Lanka Board of Investment; Myanmar: Central Statistical Organization.

Commonalities in field observations13

Table 7 shows the major clusters of findings from our field discussions. Four clusters are identified along two themes: the assessment of the investment environment of the host country, and assessment of the Belt and Road Initiative and related investments from China.

Table 7 Findings commonalities: Four B&R destinations

Assessing BRI

Opportunities Risks

Additional resources for development Financial unsustainability (debt burden) Improve infrastructure Environmental impacts Speed up economic growth and Public opposition transformation Major powers tension Capacity deficit (government & participating companies) Investment Environment

Opportunities Challenges

Emerging economies Underdeveloped institutions Improving policy & reform Lack of educated workforce Global supply chain changes Corruption

Investment Environment

The four countries shared characteristics of an emerging economy with economic growth picking up, though the pace varies (Table 8). Growth in Vietnam, Cambodia and Myanmar after 2010 has been in the range of 5-7% per annum or above, showing a steady trend of healthy growth, while growth in Sri Lanka shows a more lacklustre downward trend after a short spike to 8-9% in 2010-12. All four have been through traumas of severe political conflicts, wars leading to humanitarian devastations for many, which leave still discernible impacts to contemporary times in the collective social psyche and government policy. Our respondents in Cambodia shared with us how the country elites have been almost eliminated during the Pol Pot regime (Respondent No. 267, 277c). The military rule in Myanmar since 1962 led to Western sanctions for two decades, and minorities insurgencies have persisted till today to haunt the elected civil governments (Respondent No. 387, 395). Reform and opening up is a common theme and development strategy for the governments, though the momentum and

13 Discussions in this section summarise the observations on respective countries in Part 3 of this Report. See Annex table at end of this section for a list of findings by country. For details of the interview respondents, see Part 3 reports and Appendix 4. 42 scope varies. In Cambodia, the strong quest for foreign investment and talent has generated a set of investor-friendly policy towards a free-market model of economy. The bureaucracy has been restructured to reflect the priorities, with a powerful Council for the Development established. A high-level government-private sector forum is also established and chaired by the Head of Government to make final decisions on chronic issues and address concerns of investors (Respondent No. 263). All four are keen to join the network of global supply chains to develop trade and industries. Special economic zones and industrial parks have been established, or plans in the pipeline, as a measure to improve the investment environment for individual investors and provide synergistic management support. Vietnam has been very successful in that regard, with steady growth in FDI over the years, and a phenomenal surge in 2019. 14 A government respondent stressed to us that while they welcome the additional investment, Vietnam would prioritise investments which bring more up-to-date technology and modern management ideas, and which forge more organic collaborations with Vietnamese domestic companies to enable more domestic capacity building (Respondent No. 312).

Table 8 GDP Growth Rate (Annual, %): Four B&R destinations, 2009-2018

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Cambodia 0.09 5.96 7.07 7.31 7.36 7.14 7.04 7.03 7.02 7.50 Vietnam 5.40 6.42 6.24 5.25 5.42 5.98 6.68 6.21 6.81 7.08 Sri Lanka 3.54 8.02 8.40 9.14 3.40 4.96 5.01 4.49 3.42 3.21 Myanmar 10.55 9.63 5.59 7.33 8.43 7.99 6.99 5.86 6.76 6.20

12.00

10.00

8.00

6.00

4.00

GDP growth (annual %) (annual growth GDP 2.00

0.00 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Vietnam Sri Lanka Cambodia Myanmar

Source: World Bank 2020, World Development Indicators, online database, viewed 28 May 2020, http://datatopics.worldbank.org/world-development-indicators/

14 For details refer to Figure 3 in Part 3, Vietnam. 43

The four share some similar challenges, as well. The lack of quality workforce is a major issue given brain drain and human devastation. Institutions are under-developed from education and governance, and corruption is rife. Public frustration and resistance is pervasive, and the governments need to develop better their capacities to manage the discontent and address the grievances while enhancing transparency of policy. The challenge is how to engineer the pathways of reform and development, amidst all the pulling forces from within and without. In this regard, our respondents from the host governments and local academia expressed hopes from professional services and modern business from Hong Kong.

Assessing the Belt and Road Initiative

Host country respondents, from government to academics, generally welcome the initiative as it brings in additional resources in sizable scale which their countries need for economic and social development. Infrastructure deficits have been a major bottleneck of development in these countries. The funding gap has also not been met by existing aid programmes or multilateral funding sources, such as IMF and World Bank. The injection of investment should also stimulate economic growth by creating job opportunities for local workforce, enhancing training, bringing in related business and other investors, and other positive derivatives.

At the same time, there are abundant concerns over the multi-faceted risks and uncertainties that BRI projects are associated with. Debt sustainability has featured in all discussions although the local responses are remarkably different from, and more nuanced than, the popular “debt trap” discourse in much of the international media and literature. For instance, in Cambodia a government respondent confidently shared that they have implemented a strategy to manage the financial risks through prudent alignment with their national development plans, and practical assessment of project financial viability and government fiscal capacity (Respondent No. 269). For instance, they would only borrow concessionary loans for projects that are essential to the current stage of socio-economic development, and work with partners who can bear part of the transaction costs. Private sector commercial investments are welcome, on the other hand, to come through the free market opened up by liberalizing policies (Respondent No. 263). In Sri Lanka, Chinese company respondents, local business and academics, despite their different emphases, agreed that the debt issue is more complex than the popular complaint of a Chinese malicious master plan. Underlining the high debt is a historical culmination of multiple developments: poor balance of payments, long years of civil year and underdevelopment, substandard governance and political in-fighting leading to persistent fiscal deficits, corruption, and poor state-society-business relations (Respondent No. 201, 353, 354, 363).

Environmental impacts of BRI projects have been a source of local resistance, and in some cases have led to reversal of government policy and pause/cancellation to projects, for instance the Myitsone Dam in Myanmar. The design of the project lacks cultural sensitivities, a respondent in a local university shared with us, and there has been little effective communication between the government, the Chinese investor and the local population over their differences (Respondent No. 371). In Vietnam, a government respondent stressed to us the importance of environmental sustainability in their attraction of FDI, and that they would

44 prefer quality Hong Kong projects for their better compliance with international standards (Respondent No. 312). The Cambodian Government has ambitious vision on raising its domestic environmental standards in its latest national development plan, the Rectangular Strategy Phase 4 (Respondent No. 263a). Local public reception on the substantial upsurge of Chinese investments in past several years has been mixed as the new investment has seemingly also brought new social problems and an increase in crime (Respondent No. 277c, 277d).

Major powers tension is a constant theme of concern, as the countries are often in strategic geopolitical locations and share a complex historical relationship with China. Historical conflicts and contemporary territorial tensions between Vietnam and China, for instance, have caused a prevailing ambivalence towards the BRI in Vietnam, government or society. Despite the prospective economic benefits arising from additional investment, BRI is still regarded as a sensitive subject the government prefers not to discuss openly, and businesses not to be seen to be closely associated (Respondent No. 309, 312, 318). Relations with the Western countries, and often India, loom large in the considerations of the host country governments on BRI decisions, as they seek to achieve optimal benefits without antagonizing any one of them. In these circumstances, Hong Kong investments offer a good option to depoliticize project decisions. This has been conspicuous in Sri Lanka and Vietnam, where the advantage of the “Hong Kong brand” has been explicitly acknowledged by key stakeholders (Respondent No. 201, 309, 318).

Role of and opportunities for Hong Kong

Hong Kong has a major presence in all four countries with relationship dating back decades. Historical family networks abound, and in more recent year Hong Kong has been an active source of FDI and business activity. For example, many Cambodian elites fled to Hong Kong during the turbulent decades in the Twentieth Century. Hambantota Port in Sri Lanka is managed by the Hong Kong-based China Merchants Group. Respondents we met in these countries all shared their high hopes and expectations for Hong Kong’s participation in their national development, from capacity building investment to future prospect of financing services, from promotion and publicity to technological transfers. Table 9 summarizes the major themes discussed on the roles of Hong Kong amongst our respondents. They largely converged.

Table 9 Roles of Hong Kong in Four Countries Existing Roles Potential Roles Cambodia Traditional family 1) Investment and project financing connections; business 2) Professional services in host country (e.g. straddling Hong Kong, accounting and dispute resolution) China and Cambodia; 3) Capacity building: education and migration vocational training 4) Promotion of Cambodia and B&R projects Vietnam 1) Long-standing 1) Financial platforms investor in various 2) Professional services for BRI projects industries 3) Training and technological transfer

2) Reputable business 4) Business role model for market reforms operator Sri Lanka A major source of FDI;1) Investment and project financing indirect deployment of2) Professional services for Chinese enterprises professional service and (e.g. commercial operation, risk management resources management, and localization) 3) Professional services in host country (e.g. financing and dispute resolution) 4) Role model of free port policies Myanmar 1) Long-standing 1) Investment and project financing investor in various 2) Professional services for Chinese industries enterprises (e.g. public relations and 2) Reputable business corporate social responsibility) operator 3) Professional services in host country (e.g. project assessment, testing and monitoring, and public consultation)

In addition to the usual areas of investment financing, education and training – core professional services in demand, an emerging area of opportunities for Hong Kong professional services and business is corporate social responsibility and public communications. How to respond to the rising aspirations of the population on issues from environment to compensation for resettlement displacement and labour conditions, soft skills of communications and a stronger alignment of corporate social responsibility in project designs are necessary. Our interviews with government officials in Myanmar, for instance, show that they have yet to find a way to enforce participatory governance, to raise public trust in the government and enhance transparency in project decision-making. There is neither platform for public discussion on investment projects, nor effective mechanism to incorporate public opinion in government decisions, as local academics suggested (respondent 371, 372, & 378). The decision-making process is still largely non-transparent, despite recent progress on the release of information of approved projects (Respondent No.389 & 390). Tension between the government and the public is not assisted by a popular scepticism within the policy circle that the public is strongly influenced by NGOs and the international media that often one-sidedly focus on certain issues (respondent 371). Similar problems are found in the other countries.

Hong Kong professionals have a potential role to play in improving the quality of public scrutiny and participation through providing 360-degree project management advice and capacity building training. For one thing, they can be a source of public credibility through quality and internationally accredited services in project assessment, testing and monitoring, in areas such as environmental and social impact assessment, environmental pollution inspection and so on. For another, public participation can be more effective if government and enterprises seek the help of Hong Kong professionals, as professional third parties, to establish and enforce systems to engage with stakeholders, collect public opinions, release information and show responsiveness.

Annex: Summary of the findings themes by country

Country Themes Sub-themes

1. Cambodia 1. Economic • Open-door policy, investment facilitating development mechanisms and future development in Cambodia 2. Cambodian • Nature: cooperation and connectivity perspectives • Challenges: uncertainty; lack of patience; mixed on BRI community receptions; geo-political power struggle 3. Assessment of • Conducive to Cambodia development Chinese • Precede BRI investment • Project financing • Investment impacts on Cambodia • Comparison with Japanese investment 4. BRI risks • Alignment of goals towards • Public debt management Cambodia and Cambodian • Social risks strategies • Lack of internationalization 5. Roles of and • Investment and project financing Opportunities • Professional service for Hong Kong in BRI • Capacity building: education and vocational and Cambodia training development • Promotion of Cambodia and B&R projects 2. Vietnam 1. Views on BRI • Benefits to Vietnam

• Associated with risks

2. Driving • Personal networks Investment in • Favourability of Vietnam’s investment Vietnam environment • The Sino-US trade war

3. Features of • Entered Vietnam market long before BRI Hong Kong • High cultural awareness Investment • Capacity building for the locals • Importance of CSR • International business practice and favourable local impact • Investment challenges • Strong business orientation 3. Sri Lanka 1. Case studies China Merchant Group [CMG] of two major • Colombo International Containers Terminal SOEs [CICT] • Hambantota International Port Group [HIPG] • Challenges and Efforts by CMG Ø Political and Legal Risks Ø Legal Compliance and Commercial Viability Ø Politicized decision-making in Hambantota Project Ø Local Resistance and Avoidance in Politics • Commercial Senses under State-guided Investment China Harbour Engineering Company [CHEC]

• Colombo Port City • Preparation of Sri Lanka-China Logistics and Industrial Zone, Hambantota • Challenges Ø Policy gaps hard to fill • Crisis- driven Changes 2. Shared • Centrally controlled large-scale infrastructure Features of • Avoidance in domestic politics Chinese State Investments in Sri Lanka

3. Views on BRI • ‘White elephant’ in BRI and Hong • Hong Kong’s professional services Kong’s Role • Hong Kong’s experience in free port/transit trade • Comparison with Singapore 4. Myanmar 1. Views and • Benefits to Vietnam Expectations • Associated with risks for BRI Projects 2. Challenges • Gaps in infrastructure for Foreign • Shortage of educated labour and professionals Investment • Limited financial products • Slow pace in creation of a more business-friendly environment 3. Challenges • Infrastructure bottlenecks for • Governance capacity Myanmar's Governance • Domestic political struggles • Geopolitics 4. Chinese • Public resentment on Chinese investment Investment in Myanmar Source: Content is drawn from Part 3 reports of this Final Report.

S.4 Policy Implications and Recommendations In this section we explicate the policy implications of the findings of the Study and summarise our recommendations with a view to improving the sustainability of BRI and the participation of Hong Kong professional services in the interest of the overall sustainable development of Hong Kong. More details of the recommendations are elaborated in the respective findings chapters in Part 2 of this Report. 4.1 The first major finding in the Study on what BRI actually means and intends to achieve highlights the importance of having clear communications on policy intent and scope, and in particular, the need for more interactive and grounded feedbacks to address concerns of stakeholders in industry, workers and overseas governments. It is not unusual for complex policies to evolve as circumstances and understanding change, and learning leads to behavioural and decision adjustments. This calls for a high awareness of cultural sensitivities and highlights the salience of effective communication, especially when the

policy involves diverse interests and cultural traditions with varied geostrategic significance.

Hence, we propose that the definition of BRI should focus on the core intended objective of achieving co-development which is an international public good. At the same time, private sector participation is essential in view of the need for resources in the implementation process (financing and talent, skills), thus the ‘quasi-public goods’ nature of BRI as an execution mechanism. It is imperative to delineate clearly the interface of the ‘private’ and the ‘public’ and their respective responsibilities. A clearer definition of the private-public interface will make the role of government transparent and enhance accountability. Better calibrated risks reduce uncertainty and will enable better risk management and planning, thus facilitate private sector decisions in participation. To sum up, the recommendations are: Recommendation 1 Clarify the quasi-public goods nature of the BRI and focus public communication on this defining feature to avoid misunderstanding

Recommendation 2 Delineate clearly the respective responsibilities of the private- public participation in BRI projects to enable transparency and accountability, and improve risk management.

4.2 The second finding of the Study on the changes over expectations for Hong Kong’s role in the BRI exposes the substantial gaps in expectations and views between the national policy circle actors and those in Hong Kong. It further illustrates the essential importance of open and iterative communications between Mainland and Hong Kong, and the instrumental role of the HKSARG as a facilitator in this process. The academia can also play a facilitating role as independent observers and providers of critical, non-partial, evidence-based analysis. We propose to conceptualize the role of Hong Kong as a hub to foster the development of the soft power skills in the prospective BRI participants to enhance their capacity in meeting the BRI challenges. As an extension of this concept, the GHM Greater Bay Area will be where innovations and capacity building first take place ahead of the rest of China, so that policies should be devised in the GHM Area to facilitate the process of innovation and reforms, rather than focusing on regional economic development or hurdles of integration. Hence, our recommendations:

Recommendation 3 Hong Kong’s role in the BRI should stress on its capacity of innovations, soft skills and knowledge creation, which enables it to foster the capacity building of such skills in BRI stakeholders in China and developing B&R destinations as required. Recommendation 4 GHM Greater Bay Area as a national development strategy needs to be properly understood as more than a plan for regional economic development of the eleven cities in Guangdong, Hong Kong and Macau, but a

strategy and vision plan to foster innovative reform and institutional building leveraging on the unique advantages of Hong Kong and Macau. Institutional pluralities within the GBA are a source of innovation, and this should be an important principle guiding future measures on the GBA, for example, factor mobility and in-region collaboration.

4.3 The third group of findings is on how Hong Kong as an international financial centre can help bridge the huge funding gaps for B&R projects. Investors often perceived the B&R projects as extremely high-risk investments due to the economic and political risks of countries along the BRI. Obstacles of implementing cross-border infrastructure projects and serious concerns about the success and profitability of B&R projects lead to difficulties in raising funds from traditional funding channels. To overcome the existing constraints of raising funds through the stock and bond markets for B&R projects, new investment and financing models are required by taking into account the unique characteristics and nature of funding support for cross-border infrastructure projects. Given Hong Kong is highly regarded in the international financial arena for its top-ranked capital market with a critical mass of professional financial support services, there are high expectations from the Mainland and overseas that Hong Kong can play a key role in raising funds to support B&R projects. To meet the expectations, we recommend that Hong Kong should actively participate in B&R project financing by developing a sustainable B&R investment and financing system as well as a diversified international credit investment rating system as follows: Recommendation 5 Build an investment and financing model specifically designed for cross-border infrastructure. The model requires to first build a major cross-border B&R project database categorizing the projects into public, quasi-public and private nature. Such categorization facilitates investors’ investment choice based on expected risk and return. Then, formulate a screening mechanism to select projects that have high- quality corporate governance, sound financial condition with stable cash flow. The selected high-quality projects can be packaged or securitized as bonds, trust funds or equity securities for sale to private investors. To enhance the sustainability of B&R projects, governments should provide incentives such as tax reduction or exemption to encourage project initiators to reinvest the capital raised into new projects.

Recommendation 6 Establish a public credit rating agency designated for B&R bonds. The new credit rating agency should be knowledgeable in assessing infrastructure project risk, country and business risk in developing and Islamic countries. The public rating agency should follow international principles in the credit rating assessment and invite international analysts to participate in its rating committees to enhance public confidence and creditability. The B&R governments and enterprises are required to have their B&R bonds rated by this new credit agency to be issued in China or Hong Kong as these bonds can be traded via the China-HKSAR bond connect.

Recommendation 7 Establish mechanisms to strengthen B&R bond market development. To help the B&R bond market grow, bond funds with a diversified portfolio of B&R bonds can be set up and listed in stock markets for both institutional and retail investors. To reduce the perceived high risk of B&R bonds, insurance companies, investment or policy banks can offer credit default insurance on selected bond issuers to lower the investment risk. Banks can consider accepting selected B&R bonds as collaterals for bank loans. All these measures will foster the development of the B&R bond market.

4.4 The fourth group of findings relates to the bottlenecks faced by Hong Kong accountancy profession and the profession’s views about the impact of BRI on the profession’s development. Many practitioners did not view the B&R as a business growth area in a 2016 survey. In our 2018 survey, the attitude of senior practitioners towards BRI has become more positive. In general, the practitioners agreed that BRI provides business opportunities for the profession’s future development but they were hindered by their lack of local knowledge about the B&R countries such as laws and regulations, languages and cultures. Given the problems identified, we have the following recommendations to help the profession break through the bottleneck and grasp new opportunities. Recommendation 8 Professional accountants who are interested in exploring the BRI should cooperate to have better synergies of individual expertise and provide mutual assistance. Accounting firms should be more active in establishing partnerships overseas.

Recommendation 9 Hong Kong accountancy professional bodies and the education sector should strengthen B&R elements in their training or educational courses. These include holistic training and exposures to international relations and political economy, cultural studies and strategic management, in addition to foreign languages, laws and multi-lateral institutions. For example, universities should establish more partnerships with educational institutions in countries along the B&R and arrange more interaction and exchange activities for students to and from countries along the B&R.

4.5 The fifth group of the findings on the development of Hong Kong as a BRI dispute resolution hub centring on arbitration and mediation leads to the following recommendations: Recommendation 10 Attract more overseas legal firms, especially from the B&R destinations, to set up practices in Hong Kong to provide the basis of B&R arbitration hub. Improved incentives, e.g. office space, in an expanded legal services centre with communal facilities will help. Visa approval procedures can be simplified to enhance the inflow of international arbitration talents. Universities in Hong Kong can expand their programmes in arbitration to students from the B&R countries, assisted if possible by government scholarships.

Recommendation 11 Enhance the training and professional development programmes for the local talent pool. For example, there should be more components about Islamic laws in the training programmes at local law schools and more courses on foreign languages for continuing education. Academic conferences relevant to B&R and exchanges with the B&R countries should be supported by the universities and government. Recommendation 12 Hong Kong should do more to promote its position to the Central Government as an ideal venue for the resolution of B&R disputes. The state-owned enterprises executing BRI projects should be reminded to complete their contracts in Hong Kong and designate Hong Kong as their venue of dispute resolution. A specialized commercial division of the Court of First Instance may be created to hear cases in relation to B&R, if necessary. Recommendation 13 Hong Kong and mainland China should collaborate more in the development of dispute resolution. In particular, HKSAR Government and the relevant stakeholders in Hong Kong should change its mentality from thinking only about Hong Kong’s interests to putting itself in the shoes of the GHM Greater Bay Area and coming up with a collaborative strategy to develop dispute resolution mechanisms in the GHM Greater Bay Area together. This will enable Hong Kong to get its share of dispute resolution business from projects under the Belt and Road Initiative. For example, Hong Kong’s eBRAM platform will also enhance its impact by strengthening collaboration with similar projects in China. Recommendation 14 Invest more to raise Hong Kong’s visibility and sustain our involvement in major global arbitration events. Government should provide more support and incentives, e.g. free venues, in light of the keen international competition and more proactive policy by our regional competitor (Singapore). Recommendation 15 Re-calibrating the pre-litigation mediation procedure for cross-border disputes in Chinese courts and extending the pre-litigation mediation procedure for all cross-border disputes in Guangdong. Many Hong Kong parties prefer Hong Kong mediators, even though the dispute resolution forum is in the mainland. It is therefore advisable to extend this procedure to all courts in Guangdong with steady and substantial cross-border caseloads. Recommendation 16 Extending the Mainland-Hong Kong Joint Mediation Centre (MHJMC) to cover Macau and/or the establishment of a GMH Bay Area Mediation Centre or Association, and unify the protocols. With extended coverage and the participation of other mediation organizations, the future “GMH Bay Area Mediation Centre” could take on more complex cases involving multiple jurisdictions. Participating mediation institutions of the future GMH Bay Area Mediation Centre should agree on a set of joint protocols in the appointment of mediators. Based on the existing mediation rules of the MHJMC, the participating mediation institutions should devise a set of Model Mediation Rules tailored to the needs of cross-border cases in this part of the world. A steering committee for mediation should be set up to review the current system and propose changes. The committee should include members of the judiciary and the

legal profession in each jurisdiction, as well as representatives of the various mediation institutions. ADR experts may sit as advisors.

4.6 The sixth group of major findings on the sustainability of B&R projects and role of Hong Kong relates to complaints from local communities in the host countries about environmental protection, cultural conflict and ethical issues brought by B&R projects and how Hong Kong can play a role to help mitigate the sustainability risks. One way to overcome the challenges is to improve the quality of the B&R projects in the aspects relating to environmental, social and corporate governance. ESG reporting framework can be applied to B&R projects enterprises by requiring enterprises participating in the BRI to report their compliance with ESG by items. Hong Kong has a well-established foundation in community governance, environmental protection and corporate publicity. Hong Kong professionals with their experience in ESG reporting could provide useful assistance to Chinese enterprises to implement ESG reporting for their B&G projects. This in turn would undoubtedly provide more development opportunities for the professional service sector in Hong Kong. To better equip Hong Kong’s capacity to play the role and to expand Hong Kong professionals’ business opportunities in BRI, we make the following recommendations. Recommendation 17 Hong Kong SARG, the Hong Kong professional community and the academic community should take a concerted effort to lobby the central government to implement ESG reporting system for B&R projects. The State-owned Assets Supervision and Administration Commission of the State Council may initiate pilot tests by selecting some directly-controlled state-owned enterprises to take the lead in submitting ESG reports. After reviewing and improving, the practice could be expanded to all state-owned enterprises. When the state-owned enterprises take the lead and improve their efficiency and image, other large enterprises would follow. Recommendation 18 Hong Kong should further strengthen the ESG reporting system to improve the quality of ESG practices and train talents who have knowledge in B&R countries and ESG reporting to meet the forthcoming demand from B&R participating enterprises for ESG reporting. Recommendation 19 To provide better support for 360-degree risk management and project planning/execution of BRI projects, Hong Kong should expand and improve public databases of professional service providers according to different professional categories to facilitate enterprises’ search for different services. The scope should go beyond the traditional focus on financing, accounting and legal services to cover broader project management and risk assessment dimensions, for instance public engagement and relations, corporate social responsibility, cultural awareness, language, and human resources training. The Hong Kong Trade Development Council may take the lead to cooperate with the representative bodies of various professional sectors and strengthen its B&R website design.

4.7 The seventh major group of findings relates to the role of Hong Kong’s business and professional services in overseas BRI projects, or how does Hong Kong contribute its own distinctive BRI footprint, drawing from findings from the B&R destinations. Our findings have confirmed the high international recognition of Hong Kong business and services amongst B&R stakeholders in the host countries. Hong Kong investments and the “Hong Kong brand” are seen to have brought benefits and are highly welcome. However, there is substantial unevenness in developments, with Hong Kong local private-sector investments being still less active than Chinese state and private capital going through Hong Kong as a conduit. The level of participation of Hong Kong professional services has also been rather limited, despite the high expectations and considerable potentials. Feedbacks from Hong Kong business point to a concern for high initial cost, and risks in exploring a new market. More proactive and higher level of government support is considered essential at this stage to encourage a wider scope of participation, especially the vast majority of Hong Kong business and professional services firms are SMEs. This includes linking Hong Kong businesses to local counterparts in the host countries, and to Chinese BRI actors working on projects. More overseas offices providing extended functions at “one-stop” are welcome to give a stronger representation and support on the ground. Hence our last recommendation as follows: Recommendation 20 Hong Kong SARG can provide more extensive support to Hong Kong business and professional services with an interest to develop overseas through linking them with prospective partners in the host country, with Chinese companies working on BRI projects and with the local government and academia for advice and consultation where necessary. Overseas offices, physical or virtual, can serve as a de facto one-stop unit of services to promote Hong Kong participation in the BRI overseas. Government can provide more incentives in participation in overseas promotion trips by industries to reduce the initial cost of SMEs in their exploration of opportunities, and step up market and project matching engagements.

Table 10 List of Key Publications Explicating the Policy Recommendations No. Recommendations Topic Chapters of the Report & Publications (No. in Appendix 6) 1 Quasi-public goods nature of the Part 2 Chapter 1: Belt-Road Initiative: defining BRI features Li, Ji & Chan, 2019 (31) Li & Ji (2018) (22) 2 Respective responsibilities of Part 2 Chapter 1: Belt-Road Initiative: defining the private-public participation features in BRI projects. Li & Ji, 2018 (22) Yue, 2019 (33)

No. Recommendations Topic Chapters of the Report & Publications (No. in Appendix 6) 3 Hong Kong’s role in the BRI: Part 2 Chapter 2: The co-evolving views on Hong capacity of innovations, soft Kong’s role in BRI skills and knowledge creation Li & Li, 2017 (1) Li & Li, 2017 (7) 4 Greater Bay Area as a national Part 2 Chapter 2: The co-evolving views on Hong development strategy, more than Kong’s role in BRI a plan for regional economic development Li & Kwok, 2019 (28) Liang, 2018 (23) Liang & Li, 2019 (29) Li et al, 2019 (34) Li, Luo & Yang, 2020 (39) You & Li, 2020 (38) Li et al., forthcoming 2020 (45) 5 Build an investment and Part 2 Chapter 3: Belt and Road financing and financing model specifically Hong Kong designed for cross-border infrastructure Wong, Chan & Li, 2019 (25) 6 Establish a public credit rating Part 2 Chapter 3: Belt and Road financing and agency designated for B&R Hong Kong bonds. Wong, 2017 (4) Wong, 2018 (13) 7 Establish mechanisms to Part 2 Chapter 3: Belt and Road financing and strengthen B&R bond market Hong Kong development. Wong, 2017 (4) Wong, 2017 (9) 8 Professional accountants should Part 2 Chapter 4: The Hong Kong accountancy cooperate. Accounting firms profession and the Belt and Road should be more active in establishing partnerships CSHK, 2018 (16) overseas. 9 Add more B&R elements in Part 2 Chapter 4: The Hong Kong accountancy accountant training or profession and the Belt and Road educational courses Wong, Chan & Li, 2019 (25)

No. Recommendations Topic Chapters of the Report & Publications (No. in Appendix 6) 10 Increase the presence of law Part 2 Chapter 5: Hong Kong as BRI dispute firms from BRI countries in resolution hub Hong Kong, and enhance the inflow of international arbitration Holloway et al., 2018 (17) talents

11 Enhance the training and Part 2 Chapter 5: Hong Kong as BRI dispute professional development resolution hub programmes for the local talent pool Holloway et al., 2018 (17) 12 Make Hong Kong the preferred Part 2 Chapter 5: Hong Kong as BRI dispute venue for the resolution of B&R resolution hub disputes in BRI project execution by the state-owned enterprises Holloway et al., 2018 (17) Lin, 2020 (40) 13 Hong Kong and Mainland China Part 2 Chapter 5: Hong Kong as BRI dispute to collaborate more over resolution hub applying new technologies to dispute resolution, and develop Holloway et al., 2018 (17) synergy between Hong Kong’s Lin, 2020 (40) eBRAM platform with similar projects in China 14 Invest to raise Hong Kong’s Part 2 Chapter 5: Hong Kong as BRI dispute visibility and sustain our resolution hub involvement in major global arbitration events Holloway et al., 2018 (17) 15 Extend the Hong Kong pre- Part 2 Chapter 5: Hong Kong as BRI dispute litigation mediation procedures resolution hub for cross-border disputes in Chinese courts, starting from Chan & Lin, 2018 (18) Guangdong. 16 Extend the Mainland-Hong Kong Part 2 Chapter 5: Hong Kong as BRI dispute Joint Mediation Centre resolution hub (MHJMC) to cover Macau and/or the establishment of a Chan & Lin, 2018 (18) GMH Bay Area Mediation Centre or Association, and unify the protocols. 17 Persuade the central government Part 2 Chapter 6: Belt and Road sustainability and to implement ESG reporting the role of Hong Kong system for B&R projects

No. Recommendations Topic Chapters of the Report & Publications (No. in Appendix 6) 18 Strengthen the ESG reporting Part 2 Chapter 6: Belt and Road sustainability and system to improve the quality of the role of Hong Kong ESG practices and train talents 19 Expand databases of professional Part 3 service providers to enhance risk management services 20 Provide more support to Hong Part 3 Kong business and professional services with an interest to develop overseas.

5. Public Dissemination In line with the methodology of action research, the research team takes a proactive approach to engage with key stakeholders to exchange insights, extrapolate possible alternative action choices and pathways, and share the intermediate findings with stakeholders for consolidation of thoughts, feedbacks and consensus building.

This section highlights some of the most significant dissemination, sharing and engagement activities during the research period. In the proposal, the research team had planned to use Industry Sharing Forums as a means to extrapolate possible alternative action choices and pathways and identify junctures for improving the current situation. In the execution of the project, the research team used a variety of formats to achieve the said purpose more efficiently and effectively to befit the characteristics and needs of key stakeholders from different locations and fields during the research period. The change also gives the team more flexibility to engage and exchange ideas with more key stakeholders whose schedules were always packed. A full list of major engagement and dissemination activities is at Appendix 3, and a full list of publications and outputs, including policy papers, book chapters, books, professional paper, and journal articles is at Appendix 6.

In sum, 86 major engagement and dissemination activities were conducted by the research team. Considering the categories of activities, there are 38 seminars, 37 conferences and 4 training workshops. Others include organizing press conferences, competitions, media interviews, lectures and meetings. On locations of activities, 60 of them took place in Hong Kong, 22 in the Mainland China (including Macau) and the remaining ones in various Southeast Asian cities. In terms of the roles played in these activities, the research team organized / co-organized 18 events (including 10 seminars, 2 conferences, 2 training workshops, 2 competitions, a press conference and a meeting), acted as invited speakers / panellists / panel chair for 35 events (18 seminars, 12 conferences, 2 training workshops and a series of lectures in Mainland China) and participated as audience in 31 events. A number of noteworthy engagement and dissemination activities are highlighted as follows:

Conferences

The research team participated in the Fifth Global Think Tank Summit (major participants are Chinese government officials, academics and think tanks around the world) and The First Advanced International Conference on the Belt and Road Industry and Finance (major participants are practitioners in professional services sector around the world) in Beijing in May 2017. We are the only academic team from Hong Kong to be invited to participate. Through this opportunity, we had gained first-hand observations on how the BRI is interpreted among policy experts and professionals in mainland and some potential challenges it faced during implementation, which informed our interview guides with stakeholders in the field.

The research team was invited to attend The New Moganshan Conference 2017 (新莫干山會議 2017)15, organized by NDRCICC on 15-17 September 2017. The PI was invited to address the meeting infamous for its historical influence on policy reforms since its inception in 1984 and give a 'night talk' on the topic 'Central-local collaborations for Innovations and Development - What Diversities Can Offer' (中央與地方在創新發展中的協作 - 多元的奥妙). The PI and participants also discussed institutional innovation, reform, collaboration, sustainable development and soft power of Hong Kong in the context of the Greater Bay Area and B&R during the 3-day intensive conference period. At the side of the meeting, the team had a private meeting with the senior management of NDRCICC to discuss issues relating to Hong Kong’s role in B&R financing.

The research team organized a half-day conference namely ‘Research Centre for Sustainable Hong Kong (CSHK) and CSHK International Hub for the Belt and Road Inaugural Seminar - Connecting Hong Kong Professional Services and Belt-Road Countries’ on 31 October 2017 at City University of Hong Kong. More than 100 participants, including senior government officials, Consulate / Chamber of Commerce representatives, business leaders, academics, university students and public members attended. Two panels including invited speakers from the professionals / business / consulates discussed the themes on ‘business opportunities and financing challenges of cross-border collaboration’ and ‘incubation of professional service talents to support Belt-Road countries’. A summary of the panel discussions (CSHK Working Paper No.3) was disseminated via different channels to the public. The Financial Secretary of HKSARG joined the event together with other senior officials and delivered a keynote speech. Hon Paul Chan’s speech was published on government’s website 16 while the event was reported on CityU website17.

The PI was invited as speaker at the 17th Southern Reform Conference (第十七屆南方改革論壇) at Guangzhou on 26 January 2019, organized by China Society of Economic Reform, Guangdong Society of Economic Reform and others. The research team submitted two papers to the conference and one of them won the ‘Best papers award’. The PI delivered a speech on

15 http://www.icc-ndrc.org.cn/1new_mountain/new_mountain.html 16 http://www.info.gov.hk/gia/general/201710/31/P2017103100347.htm 17 http://newscentre.cityu.edu.hk/media/news/2017/11/03/new-research-centre-promotes-sustainable- development-hong-kong 59 the significance of GBA development towards national reform in China and shaded lights on the importance of leveraging the advantages of Hong Kong’s second system, such as internationalization, in developing GBA and B&R. The speech immediately received high recognition from the organizers, who agreed that one should pay attention to the different layers of meaning of GBA and the significance of leveraging Hong Kong's advantages and leading role in internationalization and industrial upgrading. Most of the guests were experienced in the reform work and they shared many valuable reform experiences and thoughts.

The PI was invited by Sino United Publishing to present on the topic of Hong Kong and B&R in conference namely「一帶一路與大國外交七十年高端論壇」held on 25 September 2019. The PI spoke on the role of Hong Kong in facilitating the development of B&R. The conference attracted more than 100 participants including former senior government officials, former Chinese ambassadors to B&R countries, and renowned experts and scholars in international relations. Specifically, Hong Kong professional services highlighted as a source of Hong Kong’s soft power to enhance effective communication and foster mutually beneficial collaborations between China and countries along the B&R.

In December 2019, the research team planned to organize the 1.5-day ‘CSHK International Conference 2019: The Evolving Belt and Road: Risks, Practices, and Institutions’ to share and disseminate findings and engage with cross-sector and cross border stakeholders. A total of 85 articles from Hong Kong (37), Mainland China (including Macau) (41) and overseas (Asia, Europe, North America and South America) (7) were submitted for presentation. It was unfortunately cancelled due to the 2019 special social events in Hong Kong. The participants' paper abstracts were uploaded to CSHK website for public reference and to encourage continual discussions online.18

Seminars

The research team organized a public symposium entitled ‘One-Belt-One-Road: Opportunities for Hong Kong’ on 27 March 2017 at City University of Hong Kong, in which senior officials and researchers from the International Cooperation Centre of the National Development and Reform Commission (NDRCICC) of the central government, and expert speakers from Renmin University of China shared their ideas on BRI as a national development strategy. The symposium was well attended by over 100 senior professionals in business-accounting-legal sectors and academics in Hong Kong. The research team signed an MOU of collaboration with Renmin University with participation of the NDRCICC before the symposium (see Appendix 2). On the same day, the research team organized an elite luncheon panel discussion on the theme of ‘One-Belt-One-Road: Opportunities for Hong Kong: Financial Infrastructure’ between senior management of NDRCICC and other invited Mainland experts, and key Hong Kong business/professional services leaders and senior pubic officials, amongst 20 plus others. Enthusiastic interactions for 2 hours were held on three themes: (1) currency stability, (2) investment and financing and (3) credit rating.

18 http://www.cityu.edu.hk/cshk/conf_abstracts.htm 60

On 27 September 2017, the PI was invited as Speaker for a luncheon talk on B&R, GBA and Strategic Role of Hong Kong (一帶一路・大灣區．香港的策略角色) by the Chinese Club of Hong Kong ( 華商會所 ), the first business chamber of senior Chinese businessmen established in 1897 in Hong Kong. The 1.5-hour talk with enthusiastic discussion with floor was joined by about 40 Hong Kong business leaders, professionals and SME operators. The research team also took the opportunity to raise participants’ awareness of GBA and garner the participants’ views on B&R and Hong Kong’s opportunities and challenges.

The PI delivered a 2.5-hour talk on the meaning and significance of GBA from the perspective of national strategy (in particular B&R) at a public seminar we co-organized with Association of Sino Enterprises Promotion (ASEP) and The Chinese Institute of Certified Public Accountants (CICPA) on 21 October 2017, attended by more than 60 accounting professionals, Hong Kong entrepreneurs and members of the general public.

The research team met with business bodies and Chinese companies in Mainland China with B&R involvements in November 2017 in Beijing. The PI was invited to speak on Hong Kong’s role in the Greater Bay Area and B&R at a meeting of the China Association of Public Companies’ Committee Secretaries of the Boards, when we met and exchanged views with senior executives and senior representatives of its member companies of the Association, including major B&R state-owned enterprises. CSHK Working Paper No.2 entitled ‘New Challenges and Opportunities in New Age: China Association of Public Companies Conference on Belt and Road Construction’ (新時代新戰略新機遇：「一帶一路」建設董秘交流會議綜述, in Chinese) summarizes our observations of the views by the participants at the meeting on the opportunities and challenges of infrastructure developments in B&R countries, the roles of Hong Kong in constructing a soft power hub for B&R and the practical experience of China public companies in B&R projects.

The research team co-organized a seminar with the Financial Services Development Council (FSDC) entitled ‘Innovation Development and Talent Demand in Green Finance’ on 28 January 2019. A senior HKSAR government official was invited to deliver a speech as Guest of Honour for the seminar. Seven experts and related stakeholders of green finance were invited to be Speakers and Panellists to share their views on the progress of development of green finance in Hong Kong, including opportunities of green finance for B&R and GBA. The seminar successfully attracted more than 80 participants, including government officials, experts in banking and finance, social entrepreneurs, scholars and students.

Training Workshops

The research team organized two professional training workshops for accountancy professionals in collaboration with Deloitte and Association of Women Accountants (Hong Kong) (supported by Ernst & Young) on 14 September 2017 and 13 March 2018 respectively. More than 80 Hong Kong accountancy professionals and university students joined the training sessions and gained deeper understanding about the implementation as well as potential opportunities and challenges of B&R projects from the speakers’ real-life experience in participating and managing B&R projects. Our book ‘Transcending the Bottleneck—The Hong

Kong Accountancy Profession’ (突破瓶頸：香港會計業) served as part of the teaching materials for the workshop. In addition, a book launch was held in between the workshop on 14 September with book contributors sharing their views on B&R and the Hong Kong accountancy profession.

Two interactive training workshops namely ‘Guangzhou Private Enterprise Innovation, Transformation and Development (Hong Kong) Seminar: National Policies of the Guangdong- Hong Kong-Macao Greater Bay Area (廣州市民營企業創新轉型發展（香港）研修班)’ organized by the School of Continuing and Professional Studies, The Chinese University of Hong Kong (CUHK) were given on 25 June 2018 and 27 May 2019. The 2 trainings were attended by two delegations comprising a total of 89 academics and enterprise leaders from Guangdong led by the Guangzhou Institute of Socialism. The workshops discussed the opportunities and challenges of GBA to different cities in GBA and Hong Kong, as well as the role of Hong Kong in facilitating the development of GBA.

Media and Press Conference

The research team organized a press conference with SCAA on 7 May 2018 to release the survey findings about the views of B&R of the accountancy profession. A brief presentation of the findings by our team members were followed by a Q&A session. The press conference was well attended and reported by over 20 media units in Hong Kong and Mainland China, including TVB, Hong Kong Commercial Daily, Hong Kong Economic Journal and Sing Tao Daily. Copies of the survey report were also disseminated with business associations, accountancy firms and interested practitioners for their reference and feedback.

Tripartite Meetings

To facilitate idea and information exchange, we arranged a tripartite meeting at the City University of Hong Kong (Shenzhen) Research Institute in August 2018 to explore the cross- border collaboration between Mainland China parties and Hong Kong side over the latest development of eBRAM (e-Belt & Road Arbitration and Mediation) and Chinese parallel projects.

Online digital platforms and social media In addition to the engagement and dissemination activities as mentioned above, the research team also make use of digital platforms and social media to promote synergies and collaborations among the academia, industry, professional services and business sectors, government and community in Hong Kong, Mainland China and overseas, as well as to enhance dissemination and impact. They include: an open platform named Sustainable Hong Kong Research Hub (with more than 2,200 hub members), an online platform namely International Hub for B&R, Facebook account19, a website20, a YouTube channel21, a WeChat

19 www.facebook.com/sushkresearchhub/ 20 www.cityu.edu.hk/cshk 21 www.youtube.com/channel/UCrt3_7KgEHygPYf6leQ68_Q 62 public account (namely ‘HK持續發展研究中心’) and a Eventbrite account22 (for event organizing, management and promotion).

6. Conclusion This Study is about sustainability of a major national development strategy and the role of Hong Kong in it. Its findings show that the initiative of the B&R has been evolving as circumstances change and challenges emerge. The findings also suggest that Hong Kong has a unique advantage, despite bottlenecks and constraints to a wider participation. Through in- depth discussions and ongoing engagements with key stakeholders as part of our characteristic action research approach, the research team formulated ideas and proposals to address some of the bottlenecks and constraints. We also co-envisaged possible pathways with stakeholders on how capacities might be stretched and visions enhanced. Some of these ideas have entered the national policy circle and influenced policy, as in the case of Greater Bay Area development plan. More have populated meeting rooms and workshop venues, in our many engagement activities with professionals, business, students and scholars in Hong Kong, across the border and overseas.

Perpetrating the discussion of Hong Kong’s role in BRI throughout the Study is the unique institutional arrangement of ‘one country, two systems’. Itself a product of history it has become the defining feature of contemporary Hong Kong and the bedrock of its unique advantages known to the B&R stakeholders. Institutional differences between Hong Kong SAR and the Mainland are widely seen as the root of strengths for Hong Kong, not a weakness. The differences enable Hong Kong professional services to play a large role in addressing the BRI challenges. A good number of the policy recommendations we put forward in this Study is geared to further develop this potential. The latest national development strategy – the GBA – has also pinned high hopes on leveraging on the institutional advantage of Hong Kong to speed up innovations in China, starting from Guangdong. Many in the B&R destinations look upon Hong Kong investments to bring about sustainable, quality practices to contribute to their transformative developments.

Since summer 2019, however, there has been chronic tension between Hong Kong and the Mainland. At the same time, on top of the sustainability risks and suspicions discussed in this Report, the US-China trade war, then the onset of covid-19 pandemic, have added to the culmination of the global tension. Confidence to Chinese global investment is at its trough in 2020. At this critical juncture, the traditional unique advantages of Hong Kong are even more important and in demand. As in calmer times, the leverage of Hong Kong’s unique institutions will be beneficial to the sustainability of the national development vision. It will be even more so during stormy times. There is a need to appreciate the value of the traditional institutions of Hong Kong and the necessity to consolidate them during crisis, especially when confidence is fragile. Moreover, similar to what we have observed in our research in B&R countries, there is an urgent need for political soft skills and effective communications between the diverse parties. It will be highly beneficial if the HKSARG takes a lead in a process of political thawing by

22 www.eventbrite.hk 63 levelling with pluralist members of the community and bridge communication between holders of widely divergent views. By so doing it will demonstrate how risks can be properly managed and mitigated, at home as well as abroad. Hong Kong can do it for our own sustainability. We can do it for Belt and Road, and GBA too.

References

Ba, SS and Wang, ZF 2015, ‘The "One Belt One Road" Initiative: A Strategic Opportunity for Hong Kong’, Frontiers, no. 9, pp.51-61.

Chan, MH 2016, ‘陳文鴻：超級聯繫人？(Chan Munhong: Super Connector?)’, on.cc, viewed 31 May 2020, https://hk.on.cc/hk/bkn/cnt/commentary/20161129/bkn- 20161129000316321-1129_00832_001.html.

Deloitte 2016, Global City, Global Talents: London’s Rising Soft Power, viewed 31 May 2020, https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/Growth/deloitte- uk-global-cities-global-talent-2016.pdf

Du, MM 2016, ‘China’s “One Belt, One Road” Initiative: Context, Focus, Institutions, and Implications’, The Chinese Journal of Global Governance, no. 2, pp. 30-42.

Hong Kong Institute of Asia-pacific Studies 2018, ‘Survey Findings on Views on the Belt and Road Initiative in Hong Kong’, Chinese University of Hong Kong, viewed 31 May 2020, https://www.cpr.cuhk.edu.hk/en/press_detail.php?1=1&id=2278&t=中大香港亚太研究所民调-较多市民同意一带一路有助香港经济-但认为对个人和家庭经济帮助不大

Hurley, J, Morris, S, & Portelance, G 2019, ‘Examining the debt implications of the Belt and Road Initiative from a policy perspective’, Journal of Infrastructure, Policy and Development, vol. 3, no. 1, pp. 139-175.

Lam, CA & Chen, P 2015, ‘中国香港: 成为 “一带一路” 版图中的持续亮点 (Hong Kong: to be a continuous highlight in the "One Belt, One Road")’, 国际经济评论 (International Economic Review), no. 2, pp. 80-89.

Lagarde, C 2018, ‘Belt and Road Initiative: Strategies to Deliver in the Next Phase’, International Monetary Fund, viewed 31 May 2020, https://www.imf.org/en/News/Articles/2018/04/11/sp041218-belt-and-road-initiative- strategies-to-deliver-in-the-next-phase

Li, CL & Kwok, MT 2019, ‘Unpacking the Plan for the Guangdong-Hong Kong-Macao Greater Bay Area: A Mechanism for Reform’, China and the World, vol. 2, no. 2, pp. 1- 20.

Li, CL & Li, KO 2017, ‘Thoughts on national strategic role of Guangdong-Hong Kong-Macau Greater Bay Area: Leveraging on “One Country, Two Systems” in Hong Kong, envisioning advantages of soft power capacity of the Bay Area’, Policy Paper 2, Research Centre for Sustainable Hong Kong (CSHK), viewed 31 May 2020, https://www.cityu.edu.hk/cshk/files/PolicyPapers/CSHK%20Policy%20Paper%202- Greater%20Bay%20Area-Eng.pdf

Li, CL & Li, KO 2017, ‘Thoughts on national strategic role of Guangdong-Hong Kong- Macau Greater Bay Area: Leveraging on “One Country, Two Systems” in Hong Kong, envisioning advantages of soft power capacity of the Bay Area’, Policy Paper 2, Research Centre for Sustainable Hong Kong (CSHK), viewed 31 May 2020, https://www.cityu.edu.hk/cshk/files/PolicyPapers/CSHK%20Policy%20Paper%202- Greater%20Bay%20Area-Eng.pdf

Li, CL, Luo, M & Yang, S 2020, ‘制度差异与制度创新：多元制度互动下的大湾区改革 (Institutional Differentiation and Change: the Reform of the Greater Bay Area under Interactions of Divergent Institutions)’, 公共行政评论 (Journal of Public Administration), vol. 13, no. 2, pp. 23-39+193-194.

Li, CL, Mo, P, Chan, HM, Kam, CP, Wu, RS & Li, KO 2016, ‘「一帶一路」是出路嗎？ (Is the Belt-Road Initiative offering an opportunity to meet the challenges?)’, 灼見名家 (Master-insight), viewed 31 May 2020, https://www.master- insight.com/%E3%80%8C%E4%B8%80%E5%B8%B6%E4%B8%80%E8%B7%AF% E3%80%8D%E6%98%AF%E5%87%BA%E8%B7%AF%E5%97%8E%EF%BC%9F/

Li, YN, Lin, YF, Zheng YN, et al. 2015, 读懂一带一路 (Understanding the One Belt One Road Initiative), China CITIC Press, Beijing.

Lin, YF 2016, ‘林毅夫：“一带一路”中国经济的大事 (Belt and Road, a Significant Event in China’s Economy)’, The State Council Information Office of the People’s Republic of China, viewed 12 June 2020, http://www.scio.gov.cn/31773/35507/35515/35523/Document/1530462/1530462.htm

NDRC, MOFA & MOFCOM 2015, ‘Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road Belt and Road Initiative Hong Kong’, viewed 31 May 2020, https://www.beltandroad.gov.hk/visionandactions.html

NDRC & HKSARG 2017, Arrangement between the National Development and Reform Commission and the Government of the Hong Kong Special Administrative Region for Advancing Hong Kong’s Full Participation in and Contribution to the Belt and Road Initiative, viewed 6 June 2020, https://gia.info.gov.hk/general/201712/14/P2017121400551_274123_1_1513241987560 .pdf.

Stringer, ET, 2013, Action Research, Sage publications, California.

Supreme People’s Court of PRC 2016, ‘贺荣会见香港国际仲裁中心主席郑若骅一行(He Rong Met with Teresa Cheng, chairman of Hong Kong International Arbitration Centre, and Her Party)’, viewed 8 June 2020, http://www.court.gov.cn/shenpan-xiangqing- 31791.html.

United Nations Development Programme (UNDP) & China Development Bank (CDB). 2019. Harmonising Investment and Financing Standards Towards Sustainable Development along the Belt and Road.

Wang, YW 2015, “一带一路”：机遇与挑战 (the Belt and Road Initiative": Opportunity and Challenge), People's Publishing House, Beijing.

Woo, HL 2020, ‘《全球金融中心指數》：香港跌出三甲未止排名第 6 輸上海新加坡 (Global Financial Centre Indicator: Hong Kong Falls Out of the Top Three, Ranking 6th, behind Shanghai and Singapore )’, HK 01, viewed 31 May 2020, https://www.hk01.com/%E8%B2%A1%E7%B6%93%E5%BF%AB%E8%A8%8A/453 513/%E5%85%A8%E7%90%83%E9%87%91%E8%9E%8D%E4%B8%AD%E5%BF %83%E6%8C%87%E6%95%B8- %E9%A6%99%E6%B8%AF%E8%B7%8C%E5%87%BA%E4%B8%89%E7%94%B2 %E6%9C%AA%E6%AD%A2%E6%8E%92%E5%90%8D%E7%AC%AC6- %E8%BC%B8%E4%B8%8A%E6%B5%B7%E6%96%B0%E5%8A%A0%E5%9D%A 1

Xin, H 2016, ‘The Hong Kong Special Administrative Region is a key link for the Belt and Road Initiative’, China Daily Asia, viewed 31 May 2020, http://www.chinadailyasia.com/hknews/2016-05/19/content_15435184.html

Yicai 2016, ‘学者反思中企海外投资失败案例：社会责任理解不到位 (A Scholar’s Reflections on Failure Cases of Chinese Overseas Investment: Poor Understandings of Social Responsibility)’, viewed 31 May 2020, https://www.yicai.com/news/5010670.html

Yu, H 2017, “Motivation behind China’s ‘One Belt, One Road’ Initiatives and Establishment of the Asian Infrastructure Investment Bank”, Journal of Contemporary China, vol. 26, no. 105, pp. 353-368, DOI: 10.1080/10670564.2016.1245894

Zhong, Y & Hu, XH 2017, ‘粤港澳大湾区的构建与制度创新：理论基础与实施机制 (The Construction and Institutional Innovations of Guangdong Hong Kong-Macau Greater Bay Area: Theoretical Foundation and Implementation Mechanism)’, 经济学家 (Economist), no. 12. Pp. 50-57.

PART 2 Findings chapters

Chapter 1 Belt-Road Initiative: Defining Features

1. Introduction This chapter aims at answering the question “what is Belt-Road Initiative (BRI)” and sketching the defining features of BRI. The first section gives a brief overview of BRI. We review the literature on BRI in the second section, and find that there is no single official definition of the BRI, but multiple interpretations. We explore into the diverse interpretations through findings from the interviews we conducted in the Study in the third section. Finally, we highlight our findings and contributions to the understanding of the subject.

2. The Belt and Road Initiative: A Brief Overview The Belt and Road Initiative (BRI) was first raised by Xi Jinping, President of People’s Republic of China, in September and October of 2013 in Kazakhstan and Indonesia respectively. BRI consists of two initiatives- the ‘Silk Road Economic Belt’ (SREB) and ‘Maritime Silk Road’ (MSR) which cover 65 countries located in Asia, Middle East and Europe (Hong Kong Trade Development Council 2017). SREB consists of construction of road and railway connecting China and Europe through central Asian area whilst MSR refers to a plan of linking ports in Eastern China to Europe through Southeast Asian countries. It should be noted that “BRI countries” are not limited to 65 countries originally mentioned in the two initiatives since the concept is used elastically and the Chinese government and proponents welcome any aspired country to be part of the initiative (Wolff 2016). International community initially paid little attention to this grand plan as scant information was provided by the Chinese government until two years after the announcement. In March 2015, the National Development and Reform Commission, Ministry of Foreign Affairs, and Ministry of Commerce of China issued a document titled Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road (hereafter Vision and Actions), which was regarded as the “blueprint” outlining relevant principles, framework, mechanisms and action plan of BRI, although it was “still short on some detail (Yu 2017, p.355). According to Vision and Actions, opportunities are expected to bring about in five major aspects, namely “policy co-ordination”, “facilities connectivity”, “facilitate unimpeded trade”, “financial integration”, and “people-to- people bonds” (National Development and Reform Commission et al. 2015; Hong Kong Trade Development Council 2017). These five interrelated areas are seen as shared goals for BRI participating countries and corporations. Given BRI involves various countries, including different levels of their governmental organizations and departments, policy co-ordination is an essential element for implementation of the Initiative. By building “intergovernmental macro policy exchange and communication mechanism”, consensus between various governments can be reached and thus mutual political trust can be enhanced (National Development and Reform Commission et al. 2015). Second, “facilities connectivity” refers to

69 a better integration of various infrastructures among BRI participating countries which aims at facilitating exchanges of goods, services, and ideas. These infrastructures include land, maritime, and aviation transportation (e.g. roads, ports, and airports), cross-border energy supply (e.g. oil and gas pipelines), and optical cables networks. The goal is to eventually connect “all sub-regions in Asia, and between Asia, Europe and Africa” (National Development and Reform Commission et al. 2015). With better facilities connecting between countries, unimpeded trade should be facilitated by improving investment and trade facilitation, such as enhancing cooperation in the areas of information exchange, mutual recognition of regulations and standards, and improving customs clearance facilities in border ports. All these measures aim at encouraging investment and trade between BRI countries by improving existing trade structure and eliminating investment barriers. Apart from trade and investment, another important connectivity is the financial integration among the BRI countries. Cooperation in regulating financial activities, establishing regulatory coordination mechanism, improving crisis management addressing cross-border risks were proposed to nurture a better financial environment for BRI implementation. Finally, “people-to-people bond” can be realized by “promoting extensive cultural and academic exchanges, personnel exchanges and cooperation, media cooperation, youth and women exchanges and volunteer services” for gaining people’s support for cooperation between BRI countries (National Development and Reform Commission et al. 2015). The Chinese government stresses that its vision of BRI is “in line with the purposes and principles of the UN Charter” and its long held five principles of peaceful coexistence: mutual respect for each other’s sovereignty and territorial integrity, mutual non-aggression, mutual non-interference in each other’s internal affairs, equality and mutual benefit, and peaceful coexistence (National Development and Reform Commission et al. 2015). In a 2019 report jointly published by the United Nations Development Programme and China Development Bank setting out a framework of harmonising investment and financing standards for BRI projects, the BRI is described as a major means through which China contributes to the Millennium Development Goals (MDGs).

“A key mechanism in China’s cooperation (in the MDGs) is the Belt and Road Initiative (BRI), with its vision of enhanced global connectivity and facilitation of global flows of finance, trade, innovation, knowledge and cultural exchanges.” (UNDP & CDB 2019, p.4)

More official documents issued in recent years have revealed further details about BRI. For example, a statement in 2017 from the Leading Group for the Belt and Road Initiative of the Chinese Government describes BRI as a “Chinese programme whose goal is to maintain an open world economic system, and achieve diversified, independent, balanced, and sustainable development” (Office of the Leading Group for the Belt and Road Initiative 2017, p.1). To achieve these objectives, China proposed to establish a platform to promote economic policy coordination among countries involved in SREB and MSR, with six economic corridors connecting East Asia and Europe. Through foreign investments and economic collaboration, the BRI aims “to advance regional cooperation, strengthen communications between civilizations, and safeguard world peace and stability” (Office of the Leading Group for the

Belt and Road Initiative, pp.5, 9-17). With an expansive scope covering trade, finance, infrastructure, culture and diplomacy and an inclusive ‘membership’ going beyond countries along the historical trade routes, BRI has been described as a landmark national strategy of China to befit its new global role as a major power. By implementing BRI, China not only will utilize local and foreign markets and resources more efficiently but also take up more responsibilities in the international arenas and thus enhance its influence in international affairs (Lin 2016). As of January 2020, a total of 138 countries whose profiles are geographically, economically and culturally diversified and 30 international organizations have become involved in the BRI in one way or another (Belt and Road Portal 2020).

3. Multiple Interpretations: A Literature Survey Studies harbouring a broad range of perspectives and assessments on BRI have emerged soon after Xi’s announcement in 2013. As Rolland (2017a) observes, most non-Chinese commentaries on BRI soon after the announcement stressed its economics whilst only a few paid attention to its strategic purposes. One possible explanation is that BRI is an extension of “Go global” policy for enhancing internationalization of Chinese corporations and increasing outbound investment in foreign countries. This view is especially current amongst business consultants and investment banks. A number of studies have hence examined BRI’s economic impacts for the participating nations, for China and for the third parties, including challenges in implementation (e.g. Xiong, Ou & Zhang 2015; Lu 2015; Yu & Gu 2016). Brugier (2014) discusses the issues in relation to energy security and the relationship between China and Russia in the context of BRI, while Wolff (2016) reviews the financial and governmental challenges as a new approach to achieve growth. Han, Liu and Jiu (2015) discuss the opportunities for the Beijing city and how its role as the national capital of China can facilitate cultural exchanges in the B&R. Another popular strand of research examines people’s perceptions and reactions to BRI. Van der Putten et al. (2016) provide a comparative account on perceptions of BRI as seen from fourteen European countries and how different are their strategies to cope with the New Silk Roads proposed by China. Lubina (2017) analyses opposing views on BRI drawing from public discourses in Poland. Shekhar (2016) finds a duality in Indonesia: BRI is both welcome as developmental opportunities and undesirable as geopolitical threats. The complexities in reception, as shown in this brief review, indicate the instability in public discourse on BRI in many communities. Sceptical views questioning the “true” nature of the BRI have been in circulation amongst China’s neighbours, with many regard the initiative largely as a means to create new markets for Chinese companies (Cheng 2016; Yu 2017). The BRI is viewed as “the largest overseas investment” (Hancock 2017) and “the world’s biggest building project” (Philips 2017), requiring at least USD900 billion for infrastructure projects in countries along the historical Silk Road.23 Thus, some analysts have depicted the BRI as “a Chinese Marshall Plan, a state-

23 This figure is estimated by the rating agency Fitch in 2017. See https://www.theguardian.com/world/2017/may/12/the-900bn-question-what-is-the-belt-and-road-initiative. There are various estimations made by different agencies. For instance, Joe Ngai, a senior partner in McKinsey (Hong Kong), claims that the BRI requires USD 2 to 3 trillion to be funded per year in 2016. (See 71 backed campaign for global dominance, a stimulus package for a slowing economy, and a massive marketing campaign” (Kuo & Kommenda 2018). Besides, a growing body of literature interprets BRI from a strategic or diplomatic perspective and sees the foreign investment and participation in infrastructural projects as a manifestation of the Chinese Government’s strategy to strengthen Chinese influence on its neighbouring countries (The Economist 2017; Yu 2017, Holslag 2019; Rolland 2017a; Chan 2020). The BRI is, in this line of analysis, an agenda of the Chinese Government to enhance the economic power of China and revive its historical dominance over other countries (McKinsey Global Institute 2015; Maçāes 2018) or an attempt of global geopolitical remapping (Baik 2019). Overholt (2015) compares BRI to the global strategy of the US after World War II, which protected US national interests by rejuvenating allies (Japan and Europe) through economic and military measures. In his view, BRI is “a grand strategy for the Eurasian and African continents and beyond” to “create an international environment of prosperity and stability friendly to China” (Overholt 2015, p.1). Yu (2017) shares a similar view that BRI can strengthen China’s political influence and promote its economic connection with neighbouring countries through infrastructural integration. For India, the Maritime Silk Road is not peaceful in light of China’s aggressive postures in the Western Pacific (Sibal 2014), and BRI is scrutinised squarely under the lens of geo-political interests and a contestation over legitimation of the international order (Bhoothalingam 2016; Chan 2020). In response to these critics, the Chinese Government reiterates the Five Principles of Peaceful Coexistence, a backbone underlying the Chinese foreign policy since 1954, in particular the principle of “mutual non-interference in each other's internal affairs” (National Development and Reform Commission et al. 2015). The government has also stressed corporate social responsibility in B&R projects by requiring the Chinese companies executing the projects “to boost the local economy, increase local employment, improve local livelihood, and take social responsibilities in protecting local biodiversity and eco-environment” (National Development and Reform Commission et al. 2015). The emphasis on soft side of BRI does not help much, however, as some argue that the “occupation” (as per “military occupation”) not only can take place geospatially but also “mentally” or “spiritually” (Jian & Lin 2019). To a certain extent, the sceptics have identified the obvious. The concept of BRI is complex and subject to different interpretations. First, the Initiative can be understood from an economic perspective on both domestic and international levels. On the domestic level, the Initiative is designed to benefit the ongoing structural adjustment and government reforms --- the ‘supply side’ reforms, to contribute to a new phase of economic growth and sustainable development in China. Internationally, its expansive agenda spanning from infrastructure, trade, education

https://www.mckinsey.com/featured-insights/china/chinas-one-belt-one-road-will-it-reshape-global-trade#) In 2018, the Word Bank estimated the total cost of BRI is about USD575 billion (https://www.worldbank.org/en/topic/regional-integration/brief/belt-and-road-initiative) whilst Morgan Stanley predicted the total investment reach USD 1.2 to 1.3 trillion by 2027. (https://www.morganstanley.com/ideas/china-belt-and-road) A report by Centre for Global Development in 2018 even identify the estimated figure in media as high as USD 8 trillion. (See https://www.cgdev.org/sites/default/files/examining-debt-implications-belt-and-road-initiative-policy- perspective.pdf)

72 to cultural exchanges attracts a lot of interest as well as doubts (Ministry of Commerce 2016). There are also non-economic elements in the BRI, including foreign policy considerations. The Chinese government has sought to boost the legitimacy of the BRI by leveraging the United Nations Charter, the Sustainable Development Goals whilst carving out a path to a new world order (Swaine 2016; Lee, Heritage & Mao 2020). It is also believed that the BRI is a response of the Chinese leadership to the geopolitical challenges, in particular the US “Pivot to East Asia” regional strategy and Trans-Pacific Partnership under the Obama Administration (Lu 2015; Li 2019; Rolland 2017b; Chan 2017). In a review, Zhao (2016) observes that the studies on the strategic intent of BRI stress three perspectives: (1) BRI is a diplomatic issue driven by consideration of international strategy (e.g. Yan 2015); (2) BRI is proposed out of economic concerns primarily and is thus a solution to domestic economic issues, such as overcapacity (e.g. Hu 2015); and (3) BRI is essentially a grand national strategy which deals with both diplomatic and domestic issues (e.g. Tang 2015). The multiple interpretations have generated ambiguities in understanding and made it difficult to anticipate the future (Blanco Pitlo III 2015; Du 2016; Zhao 2016; Hillman 2018; Li, Ji & Chan 2019). Attempts soon emerged amongst Chinese BRI scholars to clarify the notion of BRI and, at the same time, respond to critiques from international community by offering their interpretations of BRI. For example, Ke Yin Bin, a senior researcher from Global Policy Studies Centre of Peking University and a member of Belt and Road 100 People Forum, argues that BRI should be conceptualised as a grand scheme of “cooperative modernization” encompassing the diverse (economic, political and cultural) dimensions. Based on textual study of official documents and leaders’ speeches on BRI, Ke (2016) identifies two key terms, “cooperative” (gongtong) and “modernization” (xiandaihua), which together constitute the essence of BRI. Different from the existing theories on modernization which stress the impact of economic development within the boundary of a single nation-state or society, “cooperative modernization” aims at the achievement of all-round development that benefits the humankind through voluntary cooperation amongst the varied nations of the international community. Cooperative modernisation also penetrates the various dimensions of BRI: objective, actor, principle, content, and method. For instance, the Chinese government pledges a vision to “benefit people around the world” through international collaboration in economic, political, social, and cultural aspects under the BRI (National Development and Reform Commission et al. 2015). BRI projects will practice the co-operative principles of consultation, co- construction, and sharing in the pursuit of modernization. In an article published in 2018, Ke reiterates the three basic requirements which should be fulfilled by “authentic” B&R projects: (1) adhering the principle of consultation, co-construction, and sharing when collaborating with enterprises, governments and other organizations; (2) contributing to the five areas of connectivity; (3) exploring a new mode of international cooperation and global governance to facilitate the formation of “a community of common destiny” (Ke 2018). This inclusive conception indicates that any goods and services can qualify as B&R projects only if they satisfy the above three conditions. Another major attempt to clarify the understanding comes from Professor Zhao Lei, a senior researcher in the Research Institute of Strategic Studies of the Central Party School and convenor of the influential Belt and Road 100 People Forum, a Beijing-based national network

73 of policy experts on BRI. Zhao examines BRI from the angle of cultural economics (Zhao 2015, 2016). In his view, only products or services that generate both monetary and cultural revenues can be classified as “B&R projects”. With this understanding, BRI does not simply relate to economic or financial activities (such as constructing infrastructure in foreign countries to offload domestic overcapacity), but also is a cultural phenomenon that “wins people’s hearts” (Zhao 2016, p.4). Through the provision of “public goods” (which consist of tangible material goods and intangible cultural goods) for the international communities, China can boost her economic development as well as become a “responsible major power” and “a country of culture” that actively participate in the global governance (Zhao 2016, pp.6-7). In putting forward a cultural interpretation of the BRI, Zhao argues that other international players, from enterprises to governments, are seeking to influence others in their activities and bring intangible as well as tangible benefits, thus sharing a similar objective with Chinese BRI. “(T)he enterprises from the US, Japan, and Korea do not admit that they are working on BRI. But in fact they are, i.e. seeking to win over people through services or cultural influence” (Zhao 2016, p. 14). From the cultural interpretation, what the BRI aims to achieve is analogous to many other activities in the international arena, so that its challenges will also need to be understood in the context of international relations and political economy. Ke’s definition stresses the cooperation between countries for all-round development whilst Zhao sees soft power and cultural exchange (as a kind of connectivity) as an essential feature of BRI. The expansive scope of B&R activities blurs the focus of what BRI is, since many things are involved. The multiple foci are not conducive to effective communication and may generate misunderstanding, making it difficult for contending parties to come to terms and resolve differences. We have sought to understand further these difficulties in our in-depth interviews, which we shall report below.

4. Interviews and Findings To better understand how BRI is perceived by national-level stakeholders, the research team interviewed a number of key persons from central government, business, and academia in Beijing on BRI and relevant issues.

Time Place Respondent Organization

July 2016 Beijing 023 Respondent 023 is a senior academic in international relations and foreign policy from a university in Beijing.

July 2016 Beijing 176 Respondent 176 is a senior academic of a research,

Time Place Respondent Organization

party training and policy think tank of China.

July 2016 Beijing 027 Respondent 027 is a senior official at a central government policy think tank with major role in B&R.

July 2016 Beijing 003a Respondent 003a is a mid- level official of a state financial regulatory unit in China.

March Beijing 024 Respondent 024 is a retired 2017 senior official of a Chinese central ministry with major role in B&R and active in the national policy think tank circle.

March Beijing 025 Respondent 025 is a senior 2017 official of a central ministry with major role in B&R, China.

November Beijing 155 Respondent 155 is a mid- 2017 level official of a central government unit (commerce) in China.

November Beijing 142, 143, The meeting was organized 2017 144, 145, by the China Association 146, 147, for Public Companies 148, 149, (CAPCO) with the purpose 150, 151, of exchanging views on 152, 153, BRI between board 154 secretaries from central state-owned enterprises. PI gave a presentation on Hong Kong’s strengths and possible role in B&R. Most respondents (144 to 152) are senior management

Time Place Respondent Organization

whilst respondents 143 and 153 are senior officials from CAPCO and respondent 142 and 154 are expert speakers from big-four accounting firms.

March Beijing 028 Respondent 028 is formerly 2018 a top-level official of central government policy think tank with major role in B&R.

February Beijing 230 Respondent 230 is a senior 2019 economics academic at a university in Beijing.

March Hong 282 Respondent 282 is a senior 2019 Kong management from a state- owned telecommunication corporation.

Two major observations can be drawn from the interviews. First, multiple interpretations of BRI are upheld, similar to the discussion on the literature above. Second, cultural elements, or soft power, have stood out prominently as a significant factor affecting successful BRI execution, and even seen as a defining feature.

4.1 Finding 1: Multiple BRI discourses One theme commonly found in the interviews relates to the objectives of BRI. The following five types of discourses are identified:1. BRI as a diplomatic policy; 2. BRI as an economic policy; 3. BRI as an economic and diplomatic policy; 4. BRI as an evolving notion; and 5. uncertainty about what BRI is.

BRI as a diplomatic policy Respondent 023, a senior academic of international relations and foreign policy from a major university in Beijing, discussed BRI from a perspective of international relations. She believed that the Initiative was proposed against the background of the “resurgence of continental civilization” and US China Containment Policy. First, by considering the geographical characteristics of Asia and Europe, she thought that the mountains and deserts between the two

76 continents hinder land transport. As a result, the development of maritime transportation can shorten the distance between the East and the West. With the advancement of land transport, especially the development of high-speed railway, connectivities between the continents can be greatly improved. BRI is also a response to US foreign policy, in particular Trans-Pacific Partnership (TPP) from which China was excluded. The TPP trade agreement, from respondent 023’s perspective, is a means to suppress China’s economic growth by isolating her from the surrounding countries. BRI is like a diplomatic strategy in response to a changing international environment. Unlike interviewees who regard BRI as an economic policy, respondent 023 almost said nothing on excess capacity or economic growth. The following comments is illustrative of her consideration of what issues are important in BRI.

“… BRI is right (to be proposed and implemented). But it may come too early … The external image of China is not excellent yet as people (outside of China) mostly do not like a country ruled by the Communist Party. This reflects that our soft power is not strong enough. Besides, political instability in some B&R countries has raised the cost to Chinese investment. There are problems in the Chinese foreign policy too. For instance, China spent a lot of money on the construction project of Myitsone Dam in Myanmar. But funding had been expended by the then Military Government which was hated by the locals. In other words, China was supporting those who were unpopular in the host country. Consequently, ordinary citizens in Myanmar do not like China too.” (respondent 023)

Although economic loss in foreign investment was mentioned in the above quotation, respondent 023 is more concerned about how investment or other economic activities exerts an influence to China’s international reputation and her relationship with other countries. BRI is, primarily, a diplomatic policy.

BRI as an economic policy Some interviewees expressed a different notion of BRI which has no relevance to international politics but driven by economic incentives and governed by market mechanism. For instance, respondent 025, a senior official of a Chinese central ministry with major role in B&R, expressed a view which assumes a sharp distinction between the market and the state and a clear division of labour between the government and the business sector under the Initiative. “We want to emphasize that BRI is to operate under free market principles. The major player is the enterprise whilst government only plays an assisting role.” While the meaning of “major player” and “assisting role” is ambiguous and requires further explanation, the emphasis on the economics of BRI is clear, according to the official. BRI is an economic policy: it operates under “free market principles”; and it is “a further step in an on-going economic reform”. If BRI is another step in reform, what makes this step special, we asked.

“(Because BRI) is very large in scale... The scope is extensive. We only trade with the US and Europe in the past but now we are going to collaborate with more countries and regions, in trade, investment and a whole range of activities” (respondent 025, Beijing, 2017).

Similar stress on the economics can be found amongst participants of a sharing session organized by the China Association for Public Companies (CAPCO) in November 2017 to exchange ideas on BRI between board secretaries of Chinese central enterprises from different sectors. Respondent 144 from a major media operator sees BRI as an initiative to pursue “China dream” and construct a moderately prosperous society in all respects, which includes improving people’s living standard and the Chinese economy generally. Respondent 148 from a large energy conglomerate believes that BRI provides a framework for Chinese enterprises to seek further growth and development. BRI opens up new opportunity for commercial activities, which may in turn foster further changes in political and legal sectors to better serve the commercial sector. In other words, companies will be better equipped and supported under the BRI in their “going global” to foreign markets. The political and legal infrastructures in the BRI framework are geared to the objective of economic expansion. A more nuanced view about BRI is expressed by respondent 146 from an engineering enterprise. She acknowledged a political dimension in BRI but contended that this is not what business should care about. Instead business leaders should focus on their job of developing the business successfully, including “going global”. To respondent 146, BRI provides excellent opportunities to Chinese enterprises for exploring new markets.

BRI as an economic and diplomatic policy The third view combines these two notions, i.e. BRI is an economic policy as well as a diplomatic one. Contrary to the view that the BRI is either an economic or a diplomatic policy, respondent 176, a senior academic of a research, party training and policy think tank of China, was adamant that BRI has both political and economic considerations. First, she shared that “nowadays many corporations are ’going global’ because of the pressure to survive.” This explains the economic imperative. At the same time, BRI is more than an economic policy, as China has an aspiration to bolster its status and influence in the international arena:

“Apart from enhancing the revenues of a corporation and facilitating job employment, there is a higher objective BRI should achieve, i.e. the articulation of the ‘soft (power)’. The current problem is that although we already have a lot of BRI projects in the pipeline, we still fail to have a say internationally.” (respondent 176, Beijing, 2016) Similarly, respondent 155, a mid-level official of a central government unit (commerce) in China, held the view that BRI has economic and diplomatic elements. First, she agreed that BRI is proposed out of economic considerations, in particular offloading overcapacity within China: “Of course, we (also) need to shift production abroad because of excess capacity of

78 industry.” At the same time, BRI has undeniably political significance: “(j)ust like the treasure voyages of the Ming dynasty, many things we are doing are to display national power.” Respondent 027, a senior official at a central government policy think tank with major role in B&R., also holds the view that BRI is more than an economic policy, as cultural exchange is an essential aspect of the Initiative. If both economic and diplomatic elements are found in the BRI, is it possible that they are incompatible in certain situations? If so, which one has a heavier weight? Respondent 155 reveals that “sometimes (during decisions on a project) economic efficiency is not taken into consideration as the companies need to follow government instruction”. This contradicts the notion that BRI is to operate under market principle and is a policy for boosting economic growth.

BRI as an evolving notion Respondent 028, a former top-level official at a central policy think tank with major role in B&R, perceived BRI as “a new form of globalization”, to distinguish from the Western-led globalisation. She also rejected the suggestion of a “Chinese Marshall Plan”, insisting that “BRI is not a financial assistance scheme but seeks to advance global commercial collaboration, and that there is no limitation on who can participate – all countries worldwide are welcome.” In a meeting with PI, she elaborated on how the BRI has evolved in three stages:

“First, there was a stage of planning and research. It started when President Xi proposed the Initiative in Fall 2013, and lasted until the release of our vision statement at Boao Forum for Asia in 2014. During these months, we focused on mobilizing (different governmental units) to conduct studies to ascertain what we can do, and draw up initial plans … The second stage is exploratory execution of the B&R projects. The Chinese enterprises are capable of making decisions quickly, when the circumstances require, and are very efficient to accomplish large projects. But sometimes their pace is too fast. For instance, by September 2016, they had spent huge amount on foreign investment but many projects were found to be unpractical … So, the government organized a meeting and adjusted the regulations on foreign investment in September 2016. In the Belt and Road Forum for International Cooperation held in May 2017, we released our road map to better guide the next phase of execution … We have learnt a lot from the experiences in the first two stages and thus have now become more rational and our steps steadier.” (respondent 028, Beijing, 2018)

Similar to Zhao (2016), respondent 028 understands BRI as an evolving concept rather than a static one, shifting its scope and emphasis to befit changes in circumstances.

Uncertainties of BRI A concept which is constantly changing might also lead to uncertainties and ambiguities in understanding amongst stakeholders, as people find it difficult to predict and to plan. Respondent 024 is a retired senior official of a Chinese central ministry with major role in B&R and has participated in the early BRI policy discussions. She was familiar with the national policy think tank circle, in which BRI was a major focus of activity. In view of such background, the uncertainty around BRI she shared is noteworthy:

“After BRI was first announced by the President, we at the department joined the early meetings to discuss implementation, but honestly none of us knows how to do (it). With hindsight, those on the top levels should know it well but they always pretended that the Initiative is of no military significance. The BRI should be a strategic move but now many enterprises, including private sector ones, have joined the bandwagon, causing dubious impacts. These efforts should have been managed more properly. However, there is no government unit which is in charge with coordination (of the participation of companies and social organisations in the BRI). So, things are getting rather messy... It is problematic if we are not sure whether BRI is a governmental activity or a business behaviour. Even the decision is made by our leader who is omnipotent, he may still have some blind spots. For example, he may not fully know the depth of the issues relating to state- owned enterprises.…To implement BRI overseas, we need some pioneers. But who is going to pay for the costs of pioneering the new markets? These issues require to be better thought through…” (respondent 024, 2017)

The key message is that the meaning of BRI is not clearly defined nor understood from the beginning even at the pinnacle of BRI decision-making. Zhao (2016) reveals that BRI can be traced back to two ideas in the Chinese diplomatic policy proposed by two departments of the Ministry of Foreign Affairs and have little relevance to commerce and domestic economic development. The first idea was put forward by the Department of European-Central Asian Affairs which aimed at constructing a new platform for better collaboration among member states of Shanghai Cooperation Organization, such as Russia, Kazakhstan, Kyrgyzstan, India and Pakistan. The plan was further developed and became Silk Road Economic Belt. At the same time, the Department of Asian Affairs had a plan to forge a closer relationship with countries of the Association of Southeast Asian Nations. This idea was regarded as the origin of Maritime Silk Road. These imply that the Belt and the Road were initially proposed from a diplomatic perspective which economic considerations, such as offloading overcapacity and expanding direct foreign investment, were rarely taken into account. BRI’s scope changed only when it became a national strategy with the expansive participation of enterprises and local governments. But there is still a lack of authoritative notion of BRI or a governmental unit for coordination of local governments, companies and social organisations participating in the BRI. Under this situation, various actors may have different or even conflicting views on the BRI since their perceptions are dependent on and limited by their own roles. To respondent

024, the involvement of a plurality of actors or organizations demands clear delineation of roles; otherwise the resultant confusion will reduce implementation efficacy.

Explaining the multiple interpretations The prevalence of multiple interpretations is partly a consequence of ineffective communications of the Chinese government, and partly a reflection that the official conception itself is under a process of change. The style of communications and use of language may play a role as official documents on BRI, such as the Vision and Actions, often employ expressions which do not necessarily facilitate understanding (Du 2016). Hillman (2018) reminds that in addition to a lack of concrete criteria for BRI projects, Chinese officials themselves have taken part in expanding the scope of BRI in their articulations. In the absence of a clear, official definition, multiple interpretations thrive. The diverse and shifting interpretations reveal, in part, the confusion within the policy circle and the “muddling through” characteristics of early BRI execution, which underlie the announcement of the official grand plan. Event developments have gone beyond original expectations and there is insufficient preparation, and capacity, to manage the implementation process properly. Message cascading within the expansive and multi-tier bureaucracy is ineffective. Coordination between government and enterprises has been uneven. Also, at issue is accountability and clear role differentiation between the government and the participating corporations, state or private. Some BRI projects start from agreements reached between the top leaders of governments in a “strategic collaborative” relationship. Relevant government departments will then follow up with the detailed design, arrangements of financing and project execution. “Prior feasibility test is always absent in these cases,” as shared by an informed source (respondent 003a), and the risk of economic loss is invariably high. This also explains why many companies taking part in B&R projects are stated-owned enterprises, as private companies are unlikely to welcome projects incurring a high financial risk. As it happens, state-owned enterprises have formed the backbone of “BRI pioneers” (respondent 282). The direct cost of the pioneering is provided by the state policy banks, which are a special genre of state-owned companies, through loans (respondent 003a). BRI is thus heavily influenced by the government and least likely to be operated under a conventional market mechanism as others suggest (e.g. respondent 025). However, the Chinese government or the state policy banks cannot fund all the BRI projects, nor it is the plan to. There are various structural problems in the Chinese banking and financial system, so that China cannot practically pay for all the BRI projects (respondent 003a). Separately, the Research Team has learned of the various specific difficulties through the B&R case studies (See Chapter 7 for details). A major transport infrastructure project encountered grave financing difficulties during execution and barely managed to finance its immediate construction expenses due to delays in securing credit insurance from the Chinese lending banks. The project needed to defer payments to subcontractors in managing its stringent cash flow (respondent 370, 373). In this case, the difficulties stem not only from the economic viability of the project but also from the efficiency of the governance and financing

81 infrastructure. There is a conspicuous lack of policy coordination between the various decision points within the Chinese B&R policy makers. For example, the designation of a formal ‘B&R’ status of a project creates additional layers of bureaucracy in the execution of a project, rather than enhancing its efficiency. Some projects are clearly unsustainable from a strictly commercial perspective, but economic efficiency is not the major consideration in some cases (respondent 370).

4.2 Finding 2: Cultural BRI and soft power One of the five areas of connectivity highlighted in the official BRI vision, the “people-to- people bond” stresses the social and cultural dimensions of exchanges, and can take various forms, such as through student or teacher exchanges in the field of education, co-organisation of cultural activities, and learning of language (Liu 2018). Yu (2016) considers BRI as an organic combination of economic development, political stability, and cultural exchange. Culture constitutes the highest level in the 3-level national power scheme (Zhao 2016), below it are the lowest “geographical” level that consists of raw materials and energy resources, and the second level of “biological” which refers to natural environment and human relations. To win people’s heart, which is at the third level, China must first develop her power in the biological and ideological levels and then move on to the third level. The cultural is closely associated with the notion of soft power. Senior central government officials have admitted the relevance and importance of soft power in the BRI.

“The Party and the state understand the importance of soft power. Our hard power is very strong. What we need now is to develop comprehensive national power and, in particular, we need to boost our soft power. …the concept of soft power is not limited to financial and legal aspects and includes broader dimensions...” (respondent 025, Beijing, 2017)

“Institutions and standards” (e.g. financial and legal systems) also contribute to soft power. Professional services and training will be relevant to the enhancement of soft power, beyond the hardware connectivity emphasised in the transport infrastructure construction which has preoccupied much discussion on the BRI (respondent 176, Beijing, 2016). The Research Team notes that China wants to have a voice in the formulation of international standards. However, as shared by respondent 230, a professor in languages in Beijing, there is a major gap in getting there. Some enterprises took the wrong way by simply translating their professional codes into English, ignoring that what matters is not language but performance. By using high-speed rail as an example, she suggested that because Chinese companies can construct high-speed rail in good quality, some countries have adopted the Chinese standard. In other words, a demonstration of strength in performance is more important, which will constitute a form of influence. The importance of the social dimension is shared by business leaders. Respondent 146 of a state-owned engineering enterprise emphasized to the Research Team that the Chinese 82 enterprises executing B&R projects are serving the broader economic interests of the host countries rather than focusing narrowly on completing the projects only. Respondent 148, from another state-owned enterprise in the energy sector expressed a similar stance and stress their long-term perspective in seeking collaboration with the host countries, rather than on short term profits. Although both see BRI mostly in economic terms, interestingly they did not regard profit maximization as the sole objective of their corporate activity. The importance of cultural elements in carrying out BRI projects can also be found in our overseas field work. For instance, a number of respondents in Cambodia expressed the view that the care for local community and culture is essential. However, by comparing companies from China and Japan, our local respondents expressed the view that Japanese investment is more welcome by Cambodians as they tend to be more caring about the wellbeing of community and show more respect to local culture whilst the Chinese companies seem to be more focused on profit-making. A similar observation is found in Myanmar. Apparently, there is a gap between the vision and self-perception of the Chinese corporations and actual performance, and observations by stakeholders in the host countries.

5. BRI as Provision of International Quasi-Public Goods This chapter arrives two major observations. First, there are different narratives on BRI internationally and within China, which have caused ambiguities and confusion at times regarding the objective and scope of BRI. More importantly, when understanding varies within the policy circle and amongst BRI stakeholders, this weakens lines of accountability and efficiency of execution. Secondly, BRI is not simply a grand scheme of external investment but also involves broad cultural considerations in the shaping of the world order and definition of standards. This is evident in the official documents, the secondary literature, and our findings from interviews with key BRI stakeholders. The observations direct us to reconsider a number of features of BRI. First, what are the proper roles of the government and the participating corporations? To what extent do political motivations or economic principles triumph in the BRI decision making process? Discussion in this chapter suggests tension between the political and economic considerations in certain specific contexts. Some projects have been initiated by the governments, for example, and must continue even when their economic sustainability becomes questionable. The responsibilities of government and participating corporations in a B&R project are usually not clearly assigned in practice, leading to accountability problems. One important question is who pays the bills of the BRI projects. Contrary to official rhetoric, market mechanism is often not applicable. Private corporations often find BRI infrastructure projects beyond their reach due to the uncertain risks. Moreover, given the massive scale of B&R projects, the Chinese government is motivated to attract private sector participation and employ multiple financing models. A subsequent question is: how should the public and private sectors work together? Under what criteria should a project be funded by government resources or by commercial loans? What differentiates a project under BRI from a commercial project under the “Go global” initiative, which focuses on expanding the economic return of Chinese companies?

When seeking an answer, the research team postulates the concept of “quasi-public goods” (Li, Ji & Chan 2019; Li & Ji 2018). The meaning of “quasi-public goods” in this context is different from the one commonly found in mainstream economics. In the mainstream economics, quasi- public goods refer to the goods which possess the features of both public goods and private goods, i.e. being non-competitive but expulsive (Makamura 2007). In this context, in addition to non-competitive and expulsive, the concept also stresses the goal of continuously improving the wellbeing of the public. In short, this type of good should be able to maximize the common interests of the many, and is thus more akin to the notion of public goods (Xiao & Ji 2014). Many regions along the Belt and Road are developing economies with large gaps in development needs. A primary objective of BRI is to release participating countries’ economic potentials and boost societal development through constructing new infrastructure or upgrading the existing facilities. But the development gap cannot be easily closed for two reasons. First, international financial organizations, such as the World Bank and the Asian Development Bank have insufficient capacity to meet the huge demand for investing infrastructure in the underdeveloped countries. Second, private corporations and investors are not likely to take part in infrastructure construction projects in these regions as monetary loss will likely be resulted from high risks and long construction cycle (Yu 2017). BRI is proposed against this background and thus its projects cannot be purely revenue-generating. The Chinese government certainly takes a central role in facilitating this grand strategy for regional development. However, government officials do not have the professional knowledge or experience to handle foreign investment and projects. Therefore, private corporations should also play an importance role in BRI as they possess expertise essential for executing projects. The government can offer financial support to participating corporations to compensating part of the risks and cover some operational costs which the project users (of the host countries) cannot pay timely or fully. In this regard, the goods or services possess characteristic of public good as they are government-funded. To be consistent with the notion of “five areas of connectivity” which stress on advancing development through infrastructure building, only those aim at boosting economic potentials of underdeveloped countries should be funded by the government and thus be regarded as BRI projects. However, both government and corporations taking part in these projects should consider economic feasibility in the longer run, which signifies the revenue-generating nature of private goods. To enhance financial sustainability, public-private partnership models should be better utilised in BRI projects. In this regard, BRI projects are essentially quasi-public goods as they are the hybrid of public and private goods with the objective of improving social wellbeing.

6. Conclusion This chapter finds that a clear and focused definition of BRI is lacking. There are multiple interpretations on what constitutes the BRI in the literature, in the official discourse, and amongst stakeholders in the national B&R policy circle. This plurality of definitions can be seen as a weakness of BRI as the resultant blurred lines of accountability can cause confusions and difficulties in its implementation. At the same time, the shifting definitions also reflect the evolution of BRI as an initiative in response to actors’ concerns and changing priorities. The 84 concept’s inclusive and elastic nature may absorb views of various actors but fails to resolve internal conflicts between priorities or principles. With a view to enhancing its sustainability, we have formulated a conception of BRI premising social responsibility and economic feasibility as its dual essential features.

References Baik, JW 2019, ‘“One Belt One Road” and the geopolitics of empire’, Inter-Asia Cultural Studies, vol. 20, no. 3, pp. 358-376.

Belt and Road Portal 2020, ‘Profiles of BRI Countries’, viewed 15 March 2020, https://eng.yidaiyilu.gov.cn/info/iList.jsp?cat_id=10076

Bhoothalingam, R 2016, ‘The Silk Road as a Global Brand’, China Report, vol. 52, no. 1, pp. 45-52.

Blanco Pitlo III, L 2015, ‘China’s “One Belt, One Road” To Where?’, The Diplomat, viewed 4 June 2020, https://thediplomat.com/2015/02/chinas-one-belt-one-road-to- where/

Brugier, C 2014, ‘China’s Way: the New Silk Road’, European Union Institute for Security Studies, May 2014, viewed 15 March 2019, www.jstor.org/stable/resrep06773

Chan, LH 2017, ‘Soft Balancing against the US “Pivot to Asia”: China’s Geostrategic Rationale for Establishing the AIIB’, Australian Journal of International Affairs, vol. 71, no. 6, pp. 568–590.

Chan, LH 2020, ‘Can China Remake Regional Order? Contestations with India over the Belt and Road Initiative’, Global Change, Peace & Security, https://doi.org/10.1080/14781158.2020.1772215

Cheng, LK 2016, ‘Three Questions on China’s “Belt and Road Initiative”’, China Economic Review, vol. 40, pp. 309-313.

Du, MM 2016, ‘China’s “One Belt, One Road” Initiative: Context, Focus, Institutions, and Implications’, The Chinese Journal of Global Governance, vol. 2, no. 1, pp.30-42.

(The) Economist 2017, ‘China faces resistance to a cherished theme of its foreign policy’, viewed 1 June 2017, http://www.economist.com/news/china/21721678-silk-routes- are-not-always-appealing-they-sound-china-faces-resistance-cherished-theme/

Han, J, Liu, JB & Jiu, EK 2015, ‘北京融入國家「一帶一路」戰略的定位與對策研究’(A study on Beijing’s positioning and responses to China’s “One Belt One Road’ strategy), 城市觀察, vol.6, pp.47-54.

Hancock, T 2017, ‘China encircles the world with One Belt, One Road strategy’, Financial Times, viewed 28 May 2017, https://www.ft.com/content/0714074a-0334-11e7- aa5b-6bb07f5c8e12/

Hillman, J 2018, ‘China’s Belt and Road is Full of Holes’, Centre For Strategic and International Studies, viewed 5 May 2020, https://www.csis.org/analysis/chinas- belt-and-road-full-holes

Holslag, J 2019, The Silk Road Trap: How China’s Trade Ambitions Challenge Europe, Polity Press, Cambridge.

Hong Kong Trade Development Council 2017, ‘Belt and Road’, HKTDC Belt and Road Portal, viewed 10 November 2019, https://beltandroad.hktdc.com/en/belt-and-road- basics/

Hu, AG 2015, ‘ 「一帶一路」——一場經濟地理革命’ (“One Belt One Road’: a revolution of economic geography), 大公報, viewed 21 March 2020, http://news.takungpao.com.hk/mainland/focus/2015-06/3018643.html

Jian, BC & Lin, LW 2019, ‘Reciprocity or Occupation? the CCP's ‘One Belt and One Road Initiative’ for its Development in Central Asia’, National Defense Journal, vol. 34, no. 3, pp.61-88.

Ke, YB 2016, ‘「一帶一路」的本質就是「共同現代化」’(The nature of ‘One Belt One Road” is “collaborative modernization”), in Zhao, L (ed.) “一帶一路” 年度報告:從願景到行動, Joint Publishing, Beijing, pp.61-71.

Ke, YB 2018, ‘什麼樣的項目和企業才能算是「一帶一路」的?’ (What projects and enterprises are belonged to One Belt One Road?), 一帶一路工業和信息化數據庫, viewed 20 March 2020, http://www.ydyliit.com/index.php?m=content&c=index&a=show&catid=10&id=7 548

Kuo, L & Kommenda, N 2018, ‘What is China's Belt and Road Initiative?’, The Guardian, viewed 14 March 2020, https://www.theguardian.com/cities/ng- interactive/2018/jul/30/what-china-belt-road-initiative-silk-road-explainer

Lee, PK, Heritage, A & Mao, ZC 2020, ‘Contesting Liberal Internationalism: China’s Renegotiation of World Order’, Cambridge Review of International Affairs, vol. 33, no. 1, pp. 52–60.

Li, LC & Ji, C 2018, ‘Connotation Definition and Path Optimization of the Belt and Road Project’ ( 一帶一路專案的內涵界定與路徑優化), 17th Southern Reform Conference (第十七屆南方改革論壇), 26 January 2019, Guangdong.

Li, LC, Ji, C & Chan, HM 2019, ‘何為「一帶一路」?’ (What is “One Belt One Road”?), in Li, LC (Ed.) Co-evolution of Hong Kong’s Professional Services and the Belt and Road Initiative, City University of Hong Kong Press, Hong Kong, pp.3-16.

Li, M 2019, ‘一帶一路與全球治理’ (One Belt One Road and global governance),全球政治評論, no. 68, pp.31-50

Lin, YF 2016, ‘「一帶一路」中國經濟的大事’ (One Belt One Road: an important event for Chinese economy), State Council Information Office Webpage, viewed 20 March

2020, http://www.scio.gov.cn/31773/35507/35515/35523/Document/1530462/1530462.ht m

Liu, CS 2018, ‘People to people bond: A booster to the Construction of BRI’, CGTN, viewed 28 March 2020, https://news.cgtn.com/news/3d3d414d3241444d7a457a6333566d54/share_p.html

Lu, NQ 2015, ‘中國倡導「一帶一路」戰略的意義與風險’ (The strategic meanings and risks of China’s One Belt One Road), 探索與爭鳴, vol. 12, pp. 93-97.

Lubina, M 2017, ‘From Geopolitical Chance to Security Threat: Polish Public Political Discourse on the One Belt One Road Initiative’, Polish Political Science Yearbook, vol. 46, no.1, pp. 221–238.

Maçāes B 2018, Belt and Road: A Chinese World Order, C. Hurst & Co. Ltd, London.

Makamura, Y 2007, ‘Policy for Poverty Alleviation and Income Redistribution with Quasi- Public Goods’, Journal of Public Economic Theory, vol. 9, no. 6, pp. 1031-1040.

McKinsey Global Institute 2015, ‘One Belt, One Road: From dialogue to action’, viewed 28 May 2017, http://china-trade- research.hktdc.com/resources/MI_Portal/Article/obor/2015/12/472622/1450170975 595_OneBeltOneRoadfromDialoguetoActionEN.pdf

Ministry of Commerce 2016, ‘以「一帶一路」建設為統領開創對外開放新局面’ (“One Belt One Road” and creating a new phase of opening-up), Ministry of Commerce Webpage, viewed 20 March 2020, http://www.mofcom.gov.cn/article/zt_wzqh/lanmuone/201604/20160401294893.sh tml

National Development and Reform Commission, Ministry of Foreign Affairs, & Ministry of Commerce 2015, ‘Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road’, National Development and Reform Commission Webpage, viewed 6 November, 2019, http://en.ndrc.gov.cn/newsrelease/201503/t20150330_669367.html

Office of the Leading Group for the Belt and Road Initiative 2017, ‘Building the Belt and Road: Concept, Practice and China’s Contribution’, Belt and Road Portal, viewed 15 October 2019, https://eng.yidaiyilu.gov.cn/zchj/qwfb/12731.htm

Overholt, WH 2015, ‘One Belt, One Road, One Pivot’, Global Asia, vol.10, no.3, pp.1-8.

Philips, T 2017, ‘World's biggest building project aims to make China great again’, The Guardian, viewed 28 May 2017, https://www.theguardian.com/world/2017/may/12/chinese-president-belt-and-road- initiative/

Rolland, N 2017a, ‘China’s Eurasian Century? Political and Strategic Implications of the Belt and Road Initiative’, The National Bureau of Asian Research, Seattle, WA, and Washington, DC.

Rolland, N 2017b, ‘Chinese’s “Belt and Road Initiative”: Underwhelming or Game- Changer?’, The Washington Quarterly, vol. 40, no.1, pp.127-142, doi: 10.1080/0163660X.2017.1302743

Sibal, K 2014, ‘China's maritime “silk road” proposals are not as peaceful as they seem’, Daily Mail, viewed 12 March 2020, https://www.dailymail.co.uk/indiahome/indianews/article-2566881/Chinas- maritime-silk-road-proposals-not-peaceful-seem.html

Shekhar, V 2016, ‘Indonesia's Debate and Response to China's One Belt, One Road Initiative: Balancing between Developmental Incentives and Geopolitical Anxieties’, Mainland China Studies, vol. 59, no. 4, pp.81-112.

Swaine, M D 2015, ‘Chinese Views and Commentary on the “One Belt, One Road” Initiative’, China Leadership Monitor, vol. 47, pp. 3-27, viewed 1 March 2020, https://www.hoover.org/research/chinese-views-and-commentary-one-belt-one- road

Tang, M 2015, ‘打好組合拳推動「一帶一路」’ (“Combos” strategy for promoting One Belt One Road), State Council Information Office Webpage, viewed 25 March 2020, http://www.scio.gov.cn/ztk/wh/slxy/31215/Document/1396281/1396281.htm van der Putten, F, Seaman, J, Huotari, M, Ekman, A, & Otero-Iglesias, M 2016, ‘Europe and China’s New Silk Roads’, European Think-tank Network on China, viewed 15 October 2019, https://www.clingendael.org/sites/default/files/pdfs/Europe_and_Chinas_New_Silk _Roads_0.pdf

Wolff, P 2016, ‘China’s “Belt and Road” Initiative – Challenges and Opportunities’, German Development Institute, viewed 10 March 2020, https://www.die- gdi.de/uploads/media/Belt_and_Road_V1.pdf

Xiao, WD & Ji, HY 2014, ‘准公共產品的本質屬性與供給模式：基於包容性增長的視角’ (The nature of quasi-public good and its mode of provision: an inclusive growth perspective), 理論學刊, no. 7, pp.57-61.

Xiong, AL, Pu, YJ & Zhang, Y 2015, ‘「一帶一路」與過剩產能轉移’ (“One Belt One Road and shifting overcapacity), 求索, vol. 280, no. 12, pp.75-79.

Yan, XT 2015, ‘「一帶一路」的核心的戰略關係而非交通設施’ (The essence of “One Belt One Road” is strategic relation and not transportation), Phoenix International

Think Tank, viewed 22 March 2020, https://pit.ifeng.com/a/20150908/44605931_0.shtml

Yu, H 2017, ‘Motivation behind China’s “One Belt, One Road” Initiatives and Establishment of the Asian Infrastructure Investment Bank’, Journal of Contemporary China, vol. 26, no. 105, pp. 353-368, doi: 10.1080/10670564.2016.1245894

Yu, JP & Gu, W 2016, ‘「一帶一路」建設的利益、風險與策略’ (The benefits, risks and strategy of constructing “One Belt One Road”), 南開學報 (哲學社會科學版), no. 1, pp.65-70

Yu, YQ 2016, ‘為全球共同發展提供中國機遇：全球熱議「一帶一路」’(Chinese opportunity for global development: international discussion on One Belt One Road), in Zhao, L (ed.) “一帶一路” 年度報告：從願景到行動, Joint Publishing, Beijing, pp.230-235.

Zhao, KJ 2016, ‘「一帶一路」與中國戰略意圖研究’ (A study on “One Belt One Road” and Chinese strategic intentions), in Zhao, L (ed.) “一帶一路” 年度報告：從願景到行動, Joint Publishing, Beijing, pp. 44-59.

Zhao, L 2015, 一帶一路: 中國的文明性崛起(One Belt One Road: China’s Civilization Rise), CITIC Press Corporation, Beijing.

Zhao, L 2016, ‘「一帶一路」的文化經濟學’ (The cultural economy of “One Belt One Road”), in Zhao, L (ed.) “一帶一路” 年度報告：從願景到行動, Joint Publishing, Beijing, pp.3-15.

Chapter 2

The Coevolving Views on Hong Kong’s Role in BRI

Further to the discussion on the nature and objectives of the BRI in Chapter 1, this chapter examines the role of Hong Kong in the BRI from the perspectives of the China actors, and Hong Kong. This question is of critical relevance to the objectives of the Study, as understanding the expectation of relevant stakeholders on the role of Hong Kong will have a direct implication for commanding opportunities of the BRI for Hong Kong. Observations on this question are drawn from research throughout the Study – covering the Hong Kong professional services, central policy actors and enterprise actors involved in B&R projects, and B&R country case studies. In this chapter, we summarize the changes of the views on the role of Hong Kong in BRI in three phases: the exploratory, the reflective, and the formative.

1. Exploratory: Hong Kong as Super-Connector In 2015, the "Vision and Actions" document was released as the first official elaboration on the aims and plans for BRI. It indicates the goals to improve regional connectivity and partnership to achieve “win-win cooperation that promotes common development and prosperity”. The cooperation priorities are 'five areas of connectivity', i.e. policy co-ordination, facilities connectivity, unimpeded trade, financial integration and people-to-people bond. Different regions are simply assigned with different roles and paths in further opening-up based on their comparative advantages. The leading drafter Ou Xiaoli, a bureau chief at the National Commission for Development and Reform, described the blueprint as a “free sketch painting” that outlines the general direction, pathways and areas of cooperation to the world. The local governments should autonomously explore their own pathways in advancing BRI in consideration of the general direction and their local conditions and unique advantages (Ou 2016).

1.1 Expectations of Central Government

The 2015 Document states that “we should leverage the unique role of overseas Chinese and the Hong Kong and Macao Special Administrative Regions, and encourage them to participate in and contribute to the Belt and Road Initiative" (NDRC, MOFA & MOFCOM 2015). However, that is a brief and generally-worded statement with little elaboration of details.

Whilst there were calls for Hong Kong to play a strategic role (Ba & Wang 2015; Lam & Chen 2015), discussions on Hong Kong’s dimming advantages over rising cities in Mainland China have been in circulation. For example, it is often cited that Hong Kong’s share of national GDP has fallen from 20% in 1997 to 3%, having been surpassed by Shanghai and Shenzhen. Hong Kong is no longer an indispensable platform to link the Mainland China with the world. Shanghai is developing into an international financial centre with central policy blessing, thus posing a challenge to Hong Kong (Woo, 2020). The city has long lost its once top global ranking in container throughput since the early 2000s, and so on (Legislative Council Secretariat 2018).

How to realize its ‘unique role’ in the BRI has thus preoccupied much discussions in some quarters of Hong Kong. On this there has not been much specific guidance from Beijing, however. As it turns out, the message is that the central government expected Hong Kong, from government to business, to find its own B&R pathways as other local governments and business in China do. In May 2016, Zhang Dejiang, the chairman of the Standing Committee of the National People's Congress, gave a speech at the Leaders' Roundtable of the Belt and Road Forum in Hong Kong, an event organised by HKSAR Government and attended by all major Hong Kong business. Zhang elaborated on Hong Kong’s unique advantages and expressed his high expectations for Hong Kong in contributing to BRI: Hong Kong as a multi-cultural international metropolis, the freest economy on earth, an international financial, shipping and trade centre, its mature modern service industries. With these, Hong Kong can provide comprehensive and professional commercial and logistics services for growing economic and trade activities in B&R. Having showered Hong Kong business community with praise and high hopes, Zhang left Hong Kong business to ponder what specific roles to play and actions to take. A few months later, a senior central official (respondent 025, Hong Kong, 2016) sent a similar message to industry leaders at a roundtable seminar during his visit to Hong Kong. When repeatedly asked by participants what exactly Hong Kong is expected to do for BRI, the official reiterated the stress on market rules, so that Hong Kong business will be the best placed to make their decisions regarding action plans. This suggests that three years since the announcement of the BRI, the central government did not yet have a clear plan on how Hong Kong should help with its vision, other than that a large role and participation of Hong Kong business should be favourable and thus encouraged.

1.2 The Views and Actions of Hong Kong Actors

What about the views from within Hong Kong community at this phase? Attitude was generally positive, if ambivalent, as people do not see how they can benefit from the Initiative. According 92 to a survey of 712 Hong Kong citizens by Hong Kong Institute of Asia-Pacific Studies (2016), 44% of the respondents agreed that, overall, BRI would bring net benefits to Hong Kong’s economy while 10.7% were negative. Up to two-third (67.0%) of the respondents expected little economic benefit to themselves and their families from BRI, and 60% believed that businessmen and professionals are major beneficiaries.

Our discussions with professionals in several sectors find that businessmen and professionals find it difficult to engage in B&R, which is widely seen as a state-led strategy.24 The high cost of external investment, especially in the less developed economies along the B&R, is inhibiting for many SMEs in the private sector. The more enthusiastic players often still find necessary, after an initial investment of resources in learning the potentials of BRI, to await more elaborate guidance and supportive services from government (Li et al. 2016).

The broad vision is that Hong Kong will boost its economy and international competitiveness if it seizes the opportunities in BRI. Financial services, tourism, trading and logistics, and professional and producer services are the four key industries in the Hong Kong economy that account for 57.3% of the total Gross Domestic Product (GDP) and 46.3% of total employment in 2018. These most internationally competitive pillar industries, it is believed, can complement the national strategies to “go global”. The expanding international market in B&R will generate a great deal of demands for legal, accounting, insurance, construction and other services, from which London and Singapore are eager to gain a slice. Consolidating its role in B&R is thus also beneficial for Hong Kong in the global competition with these cities.

In addition, the channels for social mobility can be widened and social contradictions can be alleviated in Hong Kong as more high-value-added jobs are created. Hong Kong youths are facing an increasingly competitive job market and declining income. From 1996 to 2016, the growth of highly skilled workforce25 had been increasingly lagging behind the growth of university educated workforce, and the medium income of university educated labour had decreased by 5.5% (New Forum & New Youth Forum 2017). The emerging market will bring about more jobs in high-skilled industries to absorb Hong Kong talents. The Hong Kong youths can seek better career and life prospect through participation in B&R.

Considering the potential synergy and benefits, Hong Kong Special Administrative Region Government (HKSARG) has been keen on promoting the participation of Hong Kong. It has described Hong Kong’s role as a “super-connector” (HKSARG 2017) to assist mainland enterprises to go global and to attract foreign investment (HKSARG 2016). Corresponding to

24 For more discussion, please refer to Part 3 of the report. 25 Highly skilled workforce includes managers and administrators, professionals and associate professionals. 93

“five areas of connectivity”, Hong Kong plans to develop as a platform for capital formation and financing, for trade and logistics, and for professional and infrastructure services, and efforts would be made to improve trading environment and strengthen people-to-people bond in B&R. For example, a new HK$200 million (US$25.5 million) Professional Services Advancement Support Scheme is created to support local professional sectors to develop international exchange activities, co-operation and publicity efforts targeting overseas markets. The Government has also supported new scholarship and subsidy schemes to improve the international exchange programmes of university students, and organized summit events and oversea business missions to promote and extend business connections between local industries with oversea markets.

2. Reflections on Risks and Mitigation: Hong Kong as Soft Power Hub 2.1 Challenges

After a few years of BRI execution, a number of Chinese investment projects in B&R countries started to cause alarms (Yicai 2016). At business level, Chinese projects are challenged by financing pressures, political and legal risks, and difficulties in winning popular support in host countries. Most of the B&R infrastructural projects are operated by Chinese SOEs, often with central government backing. The strong presence of the state in BRI have aroused doubts from both the West and B&R countries on the underlying intentions of the projects. The Initiative has been suspected as a Chinese version of Marshall Plan for the sake of China’s interests rather than an open platform for the win-win cooperation that it claims to be (Shen 2016).

Financing and debt risks

BRI project investment estimated at over 1 trillion USD (Morgan Stanley 2018) exceeds the capacities of the traditional infrastructure investors. China’s two big policy banks - China Development Bank (CDB) and the Export-Import Bank of China – have offered loans of over 300 billion USD to BRI countries26 and the big four commercial banks have put up nearly 300 of billions of USD (Xinhua News 2019). In an effort to develop new funding channels, China has taken the lead in establishing the Asian Infrastructure Investment Bank (AIIB), the Silk

26 China Development Bank (CDB) has provided financing of over 190 billion USD for more than 600 projects of the “Belt and Road” infrastructure plan since 2013 (Yao, 2019). The Export-Import Bank of China (EximBank) has provided more than 1 trillion yuan ($149 billion) to more than 1,800 “Belt and Road” projects (Leng & Yao, 2019) 94

Road Fund and the BRICS Development Bank that together have provided to date loans of tens of billion USD.27 But the need to diversify financial channels remains. A respondent close to the official funding sources once shared, ‘China’s finance and policy banks have been the major source of investment on BRI projects. This situation is unsustainable considering the unsatisfactory situation of public finance’ (respondent 003a, Beijing, 2016).

B&R projects have also drawn criticisms for their lack of transparency. Many projects are signed secretly with the host governments without appropriate public consultation or professional, third-party, inputs. There is no disclosure of the criteria that China follows to offer loans and even the amount it has lent.28 An informed source revealed to the Research Team that some B&R projects were proposed to satisfy political and diplomatic demands and usually without appropriate prior feasibility study, which is a major reason leading to subsequent difficulties (respondent 003a, Beijing, 2016). A similar observation is shared by Hong Kong professionals (respondent 101, Shanghai, 2019) and central enterprise managers (respondent 143, Beijing, 2017; respondent 147, Beijing, 2017; respondent 152, Beijing, 2017) who had direct experience in B&R projects. Offering substantial loans not only generates high financial risks but have also led to disputes on erosion of sovereignty, as high debts are unsustainable for many host countries (Hurley, Morris & Purtelance 2019). The IMF has repeatedly warned of the lack of project transparency and unsustainable debt levels after scrutiny of B&R investment (Lagarde 2018). According to a report by Centre for Global Development (Hurley, Morris & Purtelance 2019), eight out of 68 countries are in high risks of debt distress because of project lending associated with BRI. China is accused of offering unaffordable debts for large infrastructure projects that could burden the B&R countries, pressuring them to transfer control on strategic resources in return, and to compromise on key

27 As of July 2018, AIIB has approved project investment of over 5.3 billion USD in countries and regions along B&R (Xinhua News, 2018). As of December 2018, Silk Road Fund has promised to invest 11 billion USD in 28 projects in countries and regions along the B&R (China Economic Times, 2019). As of October 2019, the BRICS Development Bank has approved more than 40 projects with a total commitment of more than 12 billion USD (Zhu, 2019). 28 Generally, loans are guided by standards determined by multilateral institutions like the World Bank, the International Monetary Fund, or multilateral mechanisms like the Paris Club. There is no clear commitments of what multilateral standards will be applied in BRI. As a report evaluates, China’s behaviour as a creditor has not been subject to the disciplines and standards that other major sovereign and multilateral creditors have adopted collectively (Hurley, Morris & Purtelance, 2019). The multilateral institution AIIB follow international lending standards and practices, while the bilateral development finance institutions including CDB and China Exim Bank, which is the major source of credit for BRI projects, do not disclose the terms of their loans. A research by the Centre for Strategic and International Studies finds out that China-funded BRI projects has lower openness and less transparency at earlier stages of the project lifecycle (Hillman, 2018). 95 issues of environment and human rights violations.

Given these mounting risks, much hope was laid upon Hong Kong as a source of sophisticated market players well-tuned to international rules and professional service providers who can help China diversify the investment channels and improve performance of B&R projects. As revealed in our research, of particular interest amongst our China respondents is the prospect of the development of a Chinese credit rating system with international recognition in Hong Kong,29 in addition to services in legal, accounting and other sectors and project-based risk management.30 There is a felt need for more professional inputs in the management of B&R financing, including possible participation in the state managed Silk Road Fund. It is suggested that Hong Kong enterprises could identify quality B&R projects and borrow from the Fund, or that Hong Kong professionals could undertake outsourcing from the fund to conduct preliminary study and risk assessment on projects (respondent 003a, Beijing, 2016).

Project Management

Complex large-scale projects require not only techniques but also all-rounded project management and risk governance. A prominent problem in many B&R projects is their poor social governance that has provoked the negative sentiments of local people. In B&R countries where policy legitimacy of the government is contested, foreign enterprises will be better served to be proactive with social responsibility and be sensitive to possible negative impacts of their projects. Unfortunately, many Chinese enterprises generally attach insufficient importance to social governance and lack appropriate experience and soft skills (Zhang 2016).

Often the Chinese companies executing the B&R projects have not sufficiently directed their business to the objective of improving the welfare and development of the local community (respondent 022, Cambodia, 2018; respondent 353, Sri Lanka, 2019; respondent 371, Myanmar, 2019). For instance, while more social responsibility activities and community engagements have been put in place, these are often treated as public relations exercise, and host stakeholder perspectives have at best peripheral impacts on the core decision-making in the project governance (respondent 370 & 373, Myanmar, 2019; respondent 343, Sri Lanka). The suspension of Myitsone Dam project in Myanmar in 2011 due to strong public resistance arising from sustainability concerns and impact to local environment and culture brought home

29 Respondent 176, Beijing, 2016 30 Respondent 027, Beijing, 2016 96 the importance of “360-degree” feasibility study and adequate consultation as part of project planning and design.31 A senior central government official (respondent 155, Beijing, 2017) supplemented that the Chinese SOEs are accustomed to work with the government while pay less attention to local society and residents, which is also concurred by scholars from B&R countries (respondent 353, Sri Lanka, 2019; respondent 371, Myanmar, 2019). The enterprises are used to rely on the host governments to address the needs of the local community, including compensation, relocation and assistance to local residents affected in the projects. However, due to capacity limitations of the host governments, including corruption and skill and resource deficits, these needs are often not met, resulting in resentments against the projects.

A senior Chinese official in the central government stressed to PI during a private meeting in early 2017 that the central government would like to see Hong Kong professionals to help raise the engineering standards of Chinese construction projects, by for instance enhancing a priori feasibility assessment and better supervision of the construction process (respondent 025, Beijing, 2017). Mainland enterprises are disadvantaged in international market competition due to the differences between Chinese standards and practices and the international ones.32 While some enterprises have applied Chinese standards in bidding for international projects, it rarely led to success.33

Dispute Resolution

Another challenge is to satisfy the rising requirements of international commercial dispute resolution following the increasing economic and trade cooperation. The unstable political and social situation in B&R regions aggravate the uncertainties and risks. Still at the early stage of development, the mainland legal industry lacks the capacities and experience to provide international arbitration and mediation services for commercial dispute resolution in B&R.34 Furthermore, without a commonly recognized international legal framework to comply, there would be breaches of contract by host enterprises or governments that can hardly be inspected, arbitrated or enforced the arbitration results, generating high risks for investment (Li 2017).

31 Respondent 023, Beijing, 2017 32 Respondent 176, Beijing, 2016 33 Respondent 230, Beijing, 2019 34 In according to the Annual Report of China International Commercial Arbitration released by China International Economic and Trade Arbitration Commission (2018), the caseloads of international arbitration in 2017 is 3188, taking up 1.3% of the total, and 2/3 of the cases are involved with Hong Kong, Macao or Taiwan parties. 97

2.2 The Low Participation of Hong Kong in B&R

Challenges as discussed above point to the need for professional services. Given the shortage of mainland professional talents, Hong Kong professional services are believed to be a major source to provide solutions. Hong Kong has world-leading professionals in financial, operational risk assessment and management, human resources, infrastructure construction, education and training, and international arbitration and mediation sectors. According to a soft power report released by Deloitte (2016), there are around 0.76 million professionals working in high-skilled, knowledge-based industries, and these talents come from 39 nations and conduct business in 79 countries. Their knowledge, experience and international connections enable the supply of internationalized, high-level and flexible professional services. Meanwhile, the shared cultural background is a key advantage of Hong Kong professionals in collaboration with mainland enterprises.

What is more important but less mentioned is that, Hong Kong can supplement the weakness of Mainland China to enhance the supporting mechanisms in order to cope with the challenges in advancing BRI in the international community. As an international financial centre, Hong Kong is able to provide diversified services for B&R projects and to provide channels for foreign investment to participate in B&R. Diversified equity distribution can reduce the impression of China’s dominance in B&R, and disperse investment risks. Hong Kong can meet the demands of legal dispute resolution as an international arbitration hub. With credible legal system and well-established arbitration system, Hong Kong is one of the most popular seats of arbitration in Asia.35 Since established in 1985, Hong Kong International Arbitration Centre (HKIAC) has accumulated rich experience in commercial dispute resolution to be internationally competitive. Hong Kong professionals and NGOs have rich experience in communicating and cooperating with societies, addressing environmental issues, and dealing with individuals from diverse cultural backgrounds thanks to the ideas and practices learnt from the social governance in Hong Kong’s multicultural and developed civil society.

The relatively low participation of Hong Kong in B&R becomes a matter of concerns, given the high expectation. Almost all the mainland stakeholders we met, including the university

35 In the sixth International Arbitration Survey by Queen Mary University of London, Hong Kong is the third most preferred seat worldwide, just behind London and Paris. Hong Kong International Arbitration Centre (HKIAC) is the most preferred arbitral institution outside of Europe and the third best arbitral institution worldwide (Hong Kong Economics and Trade Office, 2015). 98 students, enterprise managers and officials at all levels, urged Hong Kong to take a more active role. Many blamed Hong Kong actors for a lack of enthusiasm to explore B&R market and inadequate understanding of Chinese policy (respondent 023, Beijing, 2016; respondent 028, Beijing, 2016; respondent 143, Beijing, 2017). However, the story runs both ways, as we find that even for the China-invested enterprises in Hong Kong, their understanding of Hong Kong society and their collaboration with other Hong Kong business are limited.36 For example, there is little involvement of Hong Kong professionals during the early phases of project decision making, which are critical to pre-emptive risk management and inclusive, “360-degree” project planning. Hong Kong professional service providers are usually engaged in technical assignments at the execution phase.37

One relevant factor in relation to Hong Kong participation is the role of government. Mainland respondents often expect the HKSARG to play a major role by encouraging and guiding the Hong Kong private sector actors in BRI participation. However, whilst the government has developed the notion of a “super-connector” as a description of the role of Hong Kong in BRI, there has not been a clear formulation of how this role will be played out, or what the HKSARG will do in this context. The lack of specific guidance has attracted criticism including from Beijing (Chan 2016). A senior researcher from a Guangdong reform think tank (respondent 141, Guangzhou, 2017) even suggested that other regions like Fujian can take the place of Hong Kong to connect with B&R regions. A leader of a research centre under Party School of the CPC Central Committee (respondent 176, Beijing, 2017) commented that HKSARG did not have clear ideas to provide policy guidance and support to Hong Kong business for better BRI participation. Analysts in Hong Kong also called for the HKSARG to play a more proactive role in strengthening Hong Kong’s connections with B&R regions and provide more practical services for enterprises and youths interested in exploring the B&R markets (Chan 2017; Song 2016; Lui 2017). At the same time, a Hong Kong-based senior manager of a large central enterprise (respondent 205, Hong Kong, 2018) evaluated that the activities organized by HKSARG may not be critical in advancing BRI-related projects because these activities are too remote from the key decision-making processes of the SOEs, which all take place in Beijing, given that SOEs are the main vanguards of the large B&R projects. The pre-existing government-to-government coordination mechanisms between Hong Kong and mainland localities have not worked well and institutional barriers to service trade have persisted.38 There is a feeling that strong policy and leadership from the central government is necessary to break

36 Respondent 119, Hong Kong, 2017; respondent 206, Hong Kong, 2018 37 Respondent 205, Hong Kong, 2018; respondent 282, Hong Kong, 2019 38 Respondent 247a, Hong Kong, 2019; respondent 247b, Hong Kong, 2019; respondent 261a, Hong Kong, 2019 99 through bottlenecks to enable a better leverage of Hong Kong’s role in the grand design of BRI.39

The Research Team notes, during communications with various sources, the high expectations for Hong Kong actors to strengthen BRI-related policy design and execution. During a private meeting, a senior official conveyed the wish that “Hong Kong should actively participate in national programmes and put forward policy suggestions to the central government in regard to what policies you need and how you can contribute to promoting BRI” (respondent 027, Beijing, 2017). In order to promote collaboration and better make use of Hong Kong in implementing BRI, she keenly proposed a number of collaborative plans, including joint policy research, training seminars for enterprises, and seminars for Hong Kong professionals to tap B&R opportunities.

2.3 Way forward: Hong Kong as a Soft Power Hub in B&R

The Research Team holds that the setbacks in execution of BRI are highly associated with the weakness of China in soft power in comparison with its aspirations. This view was shared with a number of influential policy researchers in Mainland China.40 The weakness in soft power is also well acknowledged by the central government, as a senior official from central government (respondent 025, Beijing, 2017) confirmed. In the 30th meeting of central leading team for “comprehensively deepening reform” in December 2016, soft power was described as an important booster for advancing BRI.41 As the ability to attract and coopt rather than coerce, in contrast of “hard power” in politics, soft power draws support from invisible factors, such as institutions, culture, value and ideology, while hard power utilizes military, economic and technological strength (Nye, 1990). Through BRI, China intends to expand its international exchanges and cooperation, boost economy and improve international regimes and rules. In

39 Respondent 118, Hong Kong, 2019; respondent 244a, Shenzhen, 2019; respondent 155, Beijing, 2017 40 Respondent 023, Beijing, 2017; respondent 023a, Beijing, 2017 41 From the beginning of 2000s, cultural soft power has been attached with importance in the national development planning. It is first mentioned in the 30th meeting of the Central Leading Group for Comprehensively Deepening Reforms in December 2016 that, soft power is an important booster for construction of B&R. The Guiding Opinions on Strengthening the Construction of Soft Power in One Belt One Road was then released to promote theoretical research and the construction of discourse system, and to strengthen international communication and public opinion guidance. In theoretical discussion and practices, the meanings and contents of soft power are extended to include culture, values, domestic and international institutions, human resources, national images and so on (Huang & Ding, 2010; Zhao, 2016; Zhou, 2017). 100 official discourse, BRI is an open platform for win-win cooperation.42 It heavily depends on soft power in diplomacy and practical operation to attract potential partners and facilitate international cooperation.

We put forward that Hong Kong can serve as a soft power hub in BRI43 where the supporting mechanisms are established and the platforms are operated. In addition to providing commercial services, a soft power hub can exert profound and lasting influence on the development of national soft power. In addition to professional talents, Hong Kong possesses intangible assets like international credibility and access to global resources. Developing from a small fishing village into the Pearl of the Orient, Hong Kong has matured its core values, institutional culture (such as respect for human rights, tolerance of diversity, freedom and equality, the rule of law), and an excellent business environment premising a small government, and a culture of pragmatism and flexibility in its workforce.

On one hand, mainland enterprises can directly utilize the commercial services by Hong Kong professionals to cope with the risks and challenges in going global. Apart from the known financial and legal services, Hong Kong professionals can provide support services in due diligence, feasibility research, construction design and supervision, standards verification, community management, and public relations. On the other hand, China can make use of Hong Kong’s institutional advantages to improve the supporting mechanisms and systems for BRI. Specifically, the research team proposes several policy suggestions to fulfil this vision. Firstly, Hong Kong as an international financial centre can help operate a new investment and financing model for B&R projects. 44 Through the platform of Hong Kong, more foreign investors can participate in BRI projects, thereby diversifying equity distribution and practicing the principle of “mutual cooperation, co-construction and sharing”. Secondly, the financing

42 BRI was firstly expressed and interpreted as a China-centred strategy, until September 2015 when NDRC regulated the translation as “initiative” and banned the expressions of “strategy”, “project”, “program” and “agenda” to stress BRI as an open collaboration platform that various parties voluntarily engage in. 43 For more details, please refer to the policy paper: Li, CL & Li, KO 2017, ‘Thoughts on national strategic role of Guangdong-Hong Kong-Macau Greater Bay Area: Leveraging on “One Country, Two Systems” in Hong Kong, envisioning advantages of soft power capacity of the Bay Area’, Policy Paper 2, Research Centre for Sustainable Hong Kong (CSHK), viewed 31 May 2020, https://www.cityu.edu.hk/cshk/files/PolicyPapers/CSHK%20Policy%20Paper%202-Greater%20Bay%20Area- Eng.pdf 44 For more detail, please refer to the policy paper: Wong, M, Chan, LT & Li, KO 2019, ‘構建一帶一路新投融資模型 (Constructing a New Financing Model in Belt and Road)’, Policy Paper 12, Research Centre for Sustainable Hong Kong (CSHK), viewed 31 May 2020, https://www.cityu.edu.hk/cshk/files/PolicyPapers/CSHKPP12-CHI.pdf 101 pressure of BRI projects will be mitigated through developing a B&R bond market.45 The Research Team formulated a proposal with an outline of roadmap, which has been shared with relevant central and Hong Kong authorities. 46 Thirdly, Hong Kong should strengthen its position as an international law and arbitration hub.47 When providing dispute resolution services, Hong Kong legal professionals may also collaborate with mainland and overseas counterparts to establish a framework of international law and draft normative texts for commercial contracts.

3. Hong Kong in Greater Bay Area: implementation design The Belt and Road Forum for International Cooperation held in May 2017 signals the entry into a phase of comprehensively promoting practical cooperation (Ministry of Foreign Affairs of China 2017). During the forum, dozens of agreements were signed between China and other B&R countries and regional organizations, constructing a roadmap with key cooperation areas and pathways (Xinhua News 2017). The participating national leaders reached consensus on the directing principles of BRI, namely “extensive consultation, joint contribution and shared benefits”. Accordingly, new measures and policies would be introduced and implemented from the top level of government.

3.1 Strategic Status of Hong Kong

Evidence shows that the central has already been pondering to make better use of Hong Kong

45 For more detail, please refer to the policy paper: Wong, M 2017, ‘Credit Rating and OBOR Bond Market Development: Issues, Challenges and Possible Solutions’, Policy Paper 1, Research Centre for Sustainable Hong Kong (CSHK), viewed 31 May 2020,https://www.cityu.edu.hk/cshk/files/PolicyPapers/CSHK%20Policy%20Paper%201.pdf 46 For more detail, please refer to the policy paper: Wong, M 2018, ‘Belt-Road Credit Rating Agency (BRCRA): Outlining a Roadmap’, Policy Paper 5, Research Centre for Sustainable Hong Kong (CSHK), viewed 31 May 2020, https://www.cityu.edu.hk/cshk/files/PolicyPapers/CSHK%20Policy%20Paper%205.pdf . 47 For more details, please refer to our policy papers: Holloway, D, Lin, F, Li, LC, Zheng, XH & Kwok, M 2018, ‘Strengthening Hong Kong’s Position as an Arbitration Hub in the Belt and Road Initiative’, Policy Paper 8, Research Centre for Sustainable Hong Kong (CSHK), viewed 31 May 2020, https://www.cityu.edu.hk/cshk/files/PolicyPapers/CSHK%20Policy%20Paper%208.pdf ; Chan, CH & Lin, F 2018, ‘一帶一路倡議下的爭議解決: 在粵港澳大灣區構建有效的調解體系 (Dispute Resolution in Belt and Road Initiative: Constructing Effective Mediation System in Greater Bay Area)’, Policy Paper 9, Research Centre for Sustainable Hong Kong (CSHK), viewed 31 May 2020, https://www.cityu.edu.hk/cshk/files/PolicyPapers/CSHKPP9-CHI.pdf . 102 by that time. In March 2017, the PI paid a visit to Beijing and met scholars, students and officials. Most at the time still confined Hong Kong’s role to a source of market players and professional talents to engage in the business activities in B&R. Our suggestions to leverage the soft power capacity of Hong Kong offer innovative insights for them to reassess the value of Hong Kong and provoked discussion and questioning. Meanwhile, the central leaders have come around that Hong Kong encountered difficulties in finding the pathways in engaging in B&R. As a result, plans were being drawn up to provide the supporting measures to facilitate participation (respondent 025, Beijing, 2017).

Before long, there came clear signals that Hong Kong is being accorded with higher strategic status in the top-level policy design. During his visit to Hong Kong in July 2017, President Xi Jinping affirmed the central government's support for Hong Kong to play its advantages and role in promoting BRI. On July 1st, the Framework Agreement on Deepening Guangdong-Hong Kong-Macao Cooperation in the Development of the Greater Bay Area was signed in the presence of President Xi. In December, the Arrangement between NDRC and HKSARG on Advancing Hong Kong's Full Participation in and Contribution to Belt and Road Initiative was signed as a blueprint for Hong Kong's further participation in BRI. The government would facilitate and promote the cooperation in market and society with measures in six key areas: finance and investment; infrastructure and maritime services; economic and trade facilitation; people-to-people bonds; taking forward the Guangdong-Hong Kong-Macao Bay Area Development; and enhancing collaboration in project interfacing and dispute resolution services. More policy plans are announced, such as the development of the green bond market and the improvement of the public-private partnership model.

It is observed that the emphasis of discussion in the B&R policy circle on Hong Kong’s role begins to change since then. The strategic significance of Hong Kong in advancing BRI receives a lot of mention, in particular through improving mechanisms and operational systems of BRI projects. A policy researcher on Hong Kong affairs from a central government unit (respondent 123, Beijing, 2019) showed high recognition of the unique values and strategic role of Hong Kong. As discussed internally in NDRC ICC, the Greater Bay Area (GBA) was proposed to strategically leverage on Hong Kong in China’s internationalization and implementation of BRI (respondent 028, Beijing, 2018). In a March 2018 visit to Beijing, officials we met showed a keen interest to the possible pathways of leveraging on Hong Kong’s international financial centre, including the possibility of establishing an independent credit rating platform with international ranking in Hong Kong (respondent 024, Beijing, 2018). In addition, we were invited to share our views to State Information Centre on their work on 103 supporting systems including electronic platforms and social credibility data centres.

Underlying this is the recognition of the value of the unique institutions and “soft environment” of Hong Kong. An influential expert (respondent 034, Guangzhou, 2019) from a Guangdong think tank shared that Hong Kong’s soft power advantages like international credibility and excellent business environment are what make the city distinguished and indispensable. Hong Kong offers a favourable environment to encourage, facilitate, and support innovation with effective intellectual property protection, a critical mass of professional intermediaries, and information freedom, which Shenzhen should take as a reference. Besides, the values such as rule of law, 48 freedom of speech and multi-culturalism 49 are expected to be diffused to Mainland China.

3.2 Transforming Views on GBA

The Greater Bay Area is the platform for Hong Kong to play its role in implementation of BRI and national development. The first appearance of the concept in national documents is in the Visions and Actions document, as a cooperation platform between coastal region and Hong Kong and Macau. In Report on the Work of the Government 2017, the development planning of GBA is put on agenda to enhance the position and function of Hong Kong and Macau in the national economic development and opening up. It is further clarified in the 2017 Arrangement on Advancing Hong Kong's Full Participation in and Contribution to Belt and Road Initiative that GBA presents opportunities for Hong Kong “to expand its economic and social development space, to enhance its status and function in the country's economic development and opening-up”, and that GBA is to “develop as a significant supporting area in B&R”. It implies that, GBA is a priority for Hong Kong to deepen collaboration with Mainland China and an amplifier for expanding Hong Kong’s influence on the implementation of BRI and national development.

In this sense, GBA is of additional value with its characteristics of “one region, two systems”, because GBA can foster its soft power and promote institutional reform through close collaboration between Guangdong and Hong Kong. The institutional difference between two systems is a driving force of innovations and reforms (Li, Luo and Yang, 2020). However, many still see GBA as a programme of regional economic integration and development. It is believed that, with different systems and institutions being implemented at Hong Kong, Macao, and the nine mainland Chinese cities, there would be barriers for the free flow of factors of

48 Respondent 155, Beijing, 2017. 49 Respondent 230, Beijing, 2018. 104 production including people, logistics, and capital. It implies that the institutional differences should be eliminated, otherwise the bottlenecks of regional integration and development cannot be broken. In September 2017, a group of policy researchers (respondent 121, respondent 122, respondent 123, Hong Kong, 2017) came to Hong Kong to seek suggestions for drafting a development plan of GBA. The regional economic cooperation paradigm was still predominant and questions had focused on industrial division and cooperation. For that, we shared our alternative view that it would be more fruitful to envisage GBA beyond a programme of regional economic cooperation but focus more to the potential contributions of Hong Kong’s unique institutions and soft skills, for the benefit of fostering the soft power capacity in the GBA,50 which seems to be fresh and inspiring for them.

It took nearly two years to draft the Outline Development Plan for the Guangdong-Hong Kong- Macao Greater Bay Area according to the new strategic intent of GBA. The Plan was finally issued on February 18th 2019. Though not explicitly, the document shows that the GBA goes beyond its original pursuit of regional economic development and now serves higher purposes in fostering the ongoing process of deepening reforms in China, and in meeting the challenges in the Chinese-led “Belt and Road Initiative”.51 The key to realize the conception is to promote the industrial cooperation, institutional reforms, and social transformation through intimate exchange and collaboration with Hong Kong and Macao. This vision of GBA as a mechanism of institutional change and reform, as well as regional development, has been elaborated in a newly published special edition on GBA and developments in a major China public policy journal (Li and Ye, 2020).

It takes time to transform ideas, and even longer to change the practices, however. The role of Hong Kong was sparsely mentioned in an important reform conference in Guangdong Province in early 2019, for example. 52 In the policymaking to promote regional collaboration, the principles rooted in the theory of regional economic integration, like the pursuit of reciprocally free flow of human capital, are no longer adaptive to the development goals of GBA but still

50 The opinions and policy suggestions are first proposed in a policy paper in July 2017: Li, CL & Li, KO 2017, ‘Thoughts on national strategic role of Guangdong-Hong Kong-Macau Greater Bay Area: Leveraging on “One Country, Two Systems” in Hong Kong, envisioning advantages of soft power capacity of the Bay Area’, Policy Paper 2, Research Centre for Sustainable Hong Kong (CSHK), viewed 31 May 2020, https://www.cityu.edu.hk/cshk/files/PolicyPapers/CSHK%20Policy%20Paper%202-Greater%20Bay%20Area- Eng.pdf 51 For more discussion, please refer to the paper: Li, LC & Kwok, MT 2019, ‘Unpacking the Plan for the Guangdong-Hong Kong-Macao Greater Bay Area: A Mechanism for Reform’, China and the World, vol. 2, no. 2, pp. 1-20. 52 The Research Team’s observation in the 17th Southern Reform Forum held in Guangzhou in January 2019. 105 exert great influences, as a researcher on Hong Kong affairs from central government (respondent 123, Beijing, 2019) commented. Thus, the central government took measures to deliver authoritative interpretations, for instance, through the diffusion by well trained and selected experts. We also have made continuous attempts to arouse the policy executors’ and practitioners’ awareness of the strategic significance of GBA in reform through seminars, lectures and meetings. Publications, including policy papers and academic articles, are produced to elaborate on how GBA can play its role in B&R53 and how Hong Kong can contribute to the soft power development of GBA.54 The Team have also put forward policy suggestions on asymmetric human capital flow,55 dispute resolution,56 and construction of GBA education hub in Hong Kong.57

Meanwhile, we seek communication with mainland officials and partnership with think tanks to develop and deliver policy suggestions. We have intimate association with think tanks like Guangdong Society of Economic Reform, the Southern Centre for International Cooperation Centre in Nansha, and China Centre for Special Economic Zone Research, that play a critical role in promoting Guangdong-Hong Kong-Macau collaboration. Through policy papers and academic outputs, we diffuse our ideas and policy suggestions widely. PI and various members of the Research Team have given multiple seminars and training lessons for Guangdong entrepreneurs and officials on various occasions, in Hong Kong and Guangdong, as well as

53 Li, CL, Ji, C, Li, KO & Mo, P 2018, ‘The Belt and Road Initiative and the Guangdong-Hong Kong-Macau Greater Bay Area: Soft Power Building in Strategic Collaboration’, in Zhao Lei (ed.), The Annual Report on One Belt One Road 2018, Commercial Press, Beijing. 54 Li, CL 2018, ‘大灣區的專業服務合作與產業發展 (Professional Services Collaboration and Industry Development in Greater Bay Area)’, in Li Xiaowei (ed.),《粵港澳大灣區與香港》(Guangdong-Hong Kong- Macao Greater Bay Area and Hong Kong), Commercial Press, Hong Kong, pp. 281-297. 55 Li, CL, Ji, C, Luo, M & Li, KO 2019, ‘大灣區要素流動的新思考方向：超越對等與非對等 (New Thoughts on the Factor Flows in Greater Bay Area: Transcending Reciprocity and Non-Reciprocity)’, Policy Paper 14, Research Centre for Sustainable Hong Kong (CSHK), viewed 31 May 2020, https://www.cityu.edu.hk/cshk/files/PolicyPapers/CSHKPP14-CHI.pdf . 56 Chan, CH & Lin, F 2018, ‘一帶一路倡議下的爭議解決: 在粵港澳大灣區構建有效的調解體系 (Dispute Resolution in Belt and Road Initiative: Constructing Effective Mediation System in Greater Bay Area)’, Policy Paper 9, Research Centre for Sustainable Hong Kong (CSHK), viewed 31 May 2020, https://www.cityu.edu.hk/cshk/files/PolicyPapers/CSHKPP9-CHI.pdf 57 Li, CL, Chung, SY, Li, KO 2018, ‘教育與人口政策脫鉤建設大灣區高等教育樞紐 Decoupling Education and Population Policies: Building Education Hub in Greater Bay Area’, Policy Paper 10, Research Centre for Sustainable Hong Kong (CSHK), viewed 31 May 2020, http://www.cityu.edu.hk/cshk/files/PolicyPapers/CSHKPP10-CHI.pdf . 106 seminars in Hong Kong to Hong Kong business, professionals and school students.58

4. Conclusion With the emergence of challenges in implementing BRI, the soft power advantages of Hong Kong have been increasingly recognized and emphasized. After 2017, the calls from central government for Hong Kong to play a strategic role by giving a full play of its advantages in the national economic development and opening-up vide the BRI are increasingly loud and clear. Part and parcel of these is the release of the Greater Bay Area as a national strategy, through which Hong Kong’s unique advantages are to be leveraged and its influence better diffused throughout the region. Specific action items on the list include the strengthening of an international dispute resolution centre, international financial and trade platform, and a green bond market for BRI. It is envisaged that the enhanced exchanges and cooperation within the GBA will precipitate further institutional reforms and social transformations that other regions may take reference to benefit the national development.

Hong Kong professionals are integral to fulfilling the vision. It is pinned with high expectations that the supporting mechanisms and systems for BRI can be established with their involvement and the professional services can improve the performance of overseas investment. However, Hong Kong professionals find it hard to match the enthusiasm and meet the expectations. The Research Team have probed the perspectives of four professional sectors in Hong Kong – accountancy, legal, financing and project management to identify the challenges and opportunities for engagement, which are elaborated in the four chapters in Part 3 respectively.

58 For instance, the PI gave training lessons for Guangzhou entrepreneurs in workshop organized by Chinese University of Hong Kong in June 2018 and May 2019. The Research Team was invited to join the 17th Southern Reform Conference held by China Society of Economic Reform in Guangzhou in January 2019 and the PI gave a speech on the GBA as a mechanism of reforms. Invited by the Association of Sino Enterprises Promotion and the Chinese Institute of Certified Public Accountants, the PI gave a talk on the meaning of Greater Bay Area from the perspective of national strategy in a public seminar for Hong Kong business and professionals in October 2017. For the full list of dissemination activities, please refer to Appendix 3. 107

Interviews Respondent Role Institution/Sector Time Venue Code

003a Mid-level State financial 2016/07 Beijing official regulatory unit, China

023 Senior academic University, Beijing 2016/07, Beijing (foreign policy) 2017/03, 2018/10

023a Senior academic Research, party training 2017/03, Beijing & policy think tank, 2018/03 China

024 Retired senior Central ministry with 2017/03, Beijing official major role in B&R, 2017/05 China

025 Senior official Central ministry with 2016, Hong Kong, major role in B&R, Beijing China

2017/03

027 Senior official Central government 2016/07 Beijing policy think tank with major role in B&R

028 Top-level Central government 2017/03, Beijing, Hong official policy think tank with 2018/03 Kong major role in B&R

034 Senior Research institute, 2017/05 Guangzhou management Guangdong

101 Partner, Big-four accounting 2017/07, Guangdong, professional firm 2019/06 Hong Kong, Shanghai

118 Senior Hong Kong office of a 2017/08, Hong Kong Management Guangdong government 2019/01 agency

108

119 Senior Hong Kong chamber of 2017/09 Hong Kong management commerce (Chinese SOEs)

141 Manager Policy think tank, 2017/11 Guangzhou Guangdong

143 Senior Chinese central 2017/11 Beijing management enterprise (communications)

147 Senior Chinese central 2017/11 Beijing management enterprise (engineering)

152 Senior Chinese central 2017/11 Beijing management enterprise (energy)

155 Mid-level Central government unit 2017/11, Beijing official (Commerce), China 2019/06

176 Senior academic Research, party training 2016/07, Hong Kong, & policy think tank, 2016/11, Beijing China 2018/01, 2018/03

193 Official, Central government 2018/03 Beijing researcher policy think tank with major role in B&R

205 Senior Hong Kong branch of a 2018/05, Hong Kong management central enterprise 2018/06

206 Senior Hong Kong branch of a 2018/05, Hong Kong management central enterprise 2018/07

230 Senior academic University, Beijing 2018/08, Beijing (economics) 2019/02

244a Mid-level Local government, 2019/01 Guangdong official Guangdong

247a Senior Hong Kong branch of a 2019/01 Hong Kong management diversified conglomerate

109

247b Senior Chamber of commerce, 2019/01 Hong Kong management Hong Kong

261a Senior Hong Kong engineering 2019/03 Hong Kong management consulting agency

280 Senior An academy (training, 2018/06, Hong Kong management, politics, policy research) 2019/03 senior academic in Guangdong

281 Academic An academy (training, 2019/03 Hong Kong politics, policy research) in Guangdong

343 Senior Chinese central 2019/10 Sri Lanka management enterprise in Sri Lanka (port)

353 Senior Research institute, Sri 2019/10 Sri Lanka researcher Lanka

370 Senior Myanmar branch of a 2019/11 Myanmar management Chinese central enterprise (construction)

371 Senior University, Myanmar 2019/11 Myanmar management, academic

373 Senior Myanmar branch of a 2019/11 Myanmar management Chinese central enterprise (construction)

110

References Ba, SS & Wang, ZF 2015, ‘The “One Belt One Road” Initiative: A Strategic Opportunity for Hong Kong’, Frontiers, no. 9, pp.51-61.

Bluhm, R, Dreher, A, Fuchs, A, Parks, B, Strange, A & Tierney, MJ 2018, ‘Connective financing: Chinese infrastructure projects and the diffusion of economic activity in developing countries’, Working Paper 64, AIDDATA, viewed 31 May 2020, https://st01-unimib- d7cl1.prod.cineca.it/sites/st01/files/WPS64_Connective_Financing_Chinese_Infrastruct ure_Projects_and_the_Diffusion_of_Economic_Activity_in_Developing_Countries.pdf

Chan, MH 2017, ‘陳文鴻：香港還未開始學習(Chan Munhong: Hong Kong has not begun to learn)’, Oriental Daily, viewed 31 May 2020, https://orientaldaily.on.cc/cnt/news/20170601/00184_001.html.

China Economics Times 2019, ‘亞投行及絲路基金投資情況’ (Investment Situation of AIIB and Silk Road Fund), viewed 31 May 2020, http://jjsb.cet.com.cn/show_507721.html

China International Economic and Trade Arbitration Commission 2018, ‘中國國際商事仲裁年度報告 2017’ (Annual Report of Chinese International Business Arbitration 2017), CIETAC, viewed 31 May 2020, http://www.cietac.org/Uploads/201810/5bd6d2e9b333e.pdf .

Hillman, J 2018, ‘China’s Belt and Road Initiative: Five Years Later’, CSIS, viewed 31 May 2020, https://csis-prod.s3.amazonaws.com/s3fs- public/publication/ts180125_hillman_testimony.pdf?mSTOaqZbgZdRpx4QWoSt1HtIa 4fN42uX

HKSARG 2016, ‘The 2016 Policy Address’, Government of Hong Kong Special Administrative Region, viewed 31 May 2020, https://www.policyaddress.gov.hk/2016/eng/index.html .

111

HKSARG 2017, ‘The 2017 Policy Address’, Government of Hong Kong Special Administrative Region, viewed 31 May 2020, https://www.policyaddress.gov.hk/jan2017/eng/index.html .

Hong Kong Economics and Trade Office 2015, ‘HKIAC Tops Prestigious Global Arbitration Survey’, HKETOSF, viewed 31 May 2020, https://www.hketosf.gov.hk/sf/whatsnew/2015/hkiacsurvey.htm .

Hong Kong Institute of Asia-pacific Studies 2016, ‘Survey Findings on Views on the Belt and Road Initiative in Hong Kong’. Chinese University of Hong Kong, viewed 31 May 2020, http://www.hkiaps.cuhk.edu.hk/wd/ni/20170612-114255_1.pdf

Huang, JH & Ding, ZY 2010, ‘中國國家軟實力研究述評 (Review on Chinese Study on National Soft Power)’, 社會科學, no. 5, pp. 31-39.

Hurley, J, Morris, S & Portelance, G 2019, ‘Examining the debt implications of the Belt and Road Initiative from a policy perspective’, Journal of Infrastructure, Policy and Development, vol. 3, no. 1, pp. 139-175.

Lam, CA & Chen, P 2015, ‘中國香港: 成為「一帶一路」版圖中的持續亮點’ (Hong Kong: to be a continuous highlight in the “One Belt, One Road”). 國際經濟評論(International Economic Review), no. 2, pp. 80-89.

Legislative Council Secretariat 2018, ‘Economic Development: Logistics industry in Hong Kong’, Legislative Council, Legislative Council Secretariat, viewed 31 May 2020, https://www.legco.gov.hk/research-publications/english/1718issh23-logistics-industry- in-hong-kong-20180510-e.pdf

Leng, C & Yao, K 2019, ‘China's EximBank provides more than $149 bln for Belt and Road projects’, Reuters, viewed 31 May 2020, https://www.reuters.com/article/china-bank- beltandroad/chinas-eximbank-provides-more-than-149-bln-for-belt-and-road-projects- idUSL3N2202TI

Li, LC, Luo, M & Yang, S 2020, ‘制度差異與制度創新：多元制度互動下的大灣區改革’ (Institutional Differentiation and Change: the Reform of the Greater Bay Area under

112

Interactions of Divergent Institutions), 公共行政評論 (Journal of Public Administration), no. 2, pp. 23-29.

Li, LC, Mo, P, Chan, HM, Kam, CP, Wu, RS & Li, KO 2016, ‘「一帶一路」是出路嗎？’ (Is the Belt-Road Initiative offering an opportunity to meet the challenges?), 灼見名家 (Master-insight), viewed 31 May 2020, https://www.master- insight.com/%E3%80%8C%E4%B8%80%E5%B8%B6%E4%B8%80%E8%B7%AF% E3%80%8D%E6%98%AF%E5%87%BA%E8%B7%AF%E5%97%8E%EF%BC%9F/

Li, LC & Ye, L 2020, ‘導語:粵港澳大灣區的發展、創新與理論闡釋’ (Introduction: The Development, Innovation and Theoretical Interpretation of Guangdong-Hong Kong- Macao Great Bay Area), 公共行政評論 (Journal of Public Administration), no. 2, pp. 1- 6.

Li, XP 2017, ‘「一帶一路」的合作機制: 法律缺陷, 複雜挑戰與應對策略 (The Cooperation Mechanism of Belt and Road: Legal Defects, Complex Challenges and Countermeasures)’, 理論月刊, no. 1, pp. 5-9.

Lui, TL 2017, ‘呂大樂：政府不坦白勿跟車太貼’(Lui Tailok: the Government is not Frank, Do not Follow the Policy Directions too Closely), 信報財經月刊, viewed 31 May 2020, https://monthly.hkej.com/monthly/article/id/1669378/%E5%91%82%E5%A4%A7%E6 %A8%82%EF%BC%9A%E6%94%BF%E5%BA%9C%E4%B8%8D%E5%9D%A6% E7%99%BD+++%E5%8B%BF%E8%B7%9F%E8%BB%8A%E5%A4%AA%E8%B2 %BC

Ministry of Foreign Affairs of China 2017, ‘加強國際合作，實現共贏發展——王毅部長在「一帶一路」國際合作高峰論壇中外媒體吹風會上的講話’ (Strengthen International Cooperation and Realize Win-Win Development – the Speech of the Head of Ministry of Foreign Affairs in Conference Press on the Issues of Belt and Road Forum for International Cooperation), viewed 31 May 2020, https://www.fmprc.gov.cn/web/zyxw/t1454490.shtml

Morgan Stanley 2018, ‘Inside China’s Plan to Create a Modern Silk Road’, viewed 31 May 2020, https://www.morganstanley.com/ideas/china-belt-and-road .

113

New Forum & New Youth Forum 2017, ‘香港各世代大學生收入比較研究報告’ (A Comparative Study on the Income of Graduates of Different Generations in Hong Kong), New Century Forum, viewed 31 May 2020, http://www.ncforum.org.hk/file/upload/file_907_SAK.pdf .

Ou, XL 2016, ‘從寫意到工筆: 「一帶一路」的願景與踐行’ (From Free Sketch Painting to Meticulous Painting: the Visions and Implementation of Belt and Road), 中國公路, no. 1, pp. 102-103.

Woo, HL 2020, ‘《全球金融中心指數》：香港跌出三甲未止排名第 6 輸上海新加坡’ (Global Financial Centre Indicator: Hong Kong Falls Out of the Top Three, Ranking 6th, behind Shanghai and Singapore). HK 01. viewed 31 May 2020, https://www.hk01.com/%E8%B2%A1%E7%B6%93%E5%BF%AB%E8%A8%8A/45 3513/%E5%85%A8%E7%90%83%E9%87%91%E8%9E%8D%E4%B8%AD%E5%B F%83%E6%8C%87%E6%95%B8- %E9%A6%99%E6%B8%AF%E8%B7%8C%E5%87%BA%E4%B8%89%E7%94%B 2%E6%9C%AA%E6%AD%A2%E6%8E%92%E5%90%8D%E7%AC%AC6- %E8%BC%B8%E4%B8%8A%E6%B5%B7%E6%96%B0%E5%8A%A0%E5%9D% A1 .

Shen, S 2016, ‘How China’s ‘Belt and Road’ Compares to the Marshall Plan’, The Diplomat, viewed 31 May 2020, https://thediplomat.com/2016/02/how-chinas-belt-and-road- compares-to-the-marshall-plan/ .

Song, XZ 2016, ‘宋小莊：「一帶一路」為何內地熱香港冷？’(Song Xiaozhuang: why Belt and Road is a Hot Topic in Mainland but not in Hong Kong?), Taikungpao, viewed 31 May 2020, http://news.takungpao.com/hkol/politics/2016-05/3318107.html .

Wang, HY 2018, ‘一帶一路倡議下，中企對外投資：回歸理性，塑造新格局’ (Chinese Outward Foreign Investment in Belt and Road Initiative: back to Rationality, Shaping a New Pattern), Iyiou, viewed 31 May 2020, https://www.iyiou.com/p/66265.html

Xinhua News 2017, ‘楊潔篪就「一帶一路」國際合作高峰論壇接受媒體採訪（全文）’ (Record of Media Interview with Yang Jiechi on Belt and Road Forum for International Cooperation), viewed 31 May 2020, http://www.xinhuanet.com//world/2017- 05/17/c_1120990542.htm

114

Xinhua News 2018, ‘亞投行已批准投資「一帶一路」項目超 53 億美元’ (AIIB has Approved Investment of over 5.3 Billion USD on Belt and Road Projects), viewed 31 May 2020, http://www.mofcom.gov.cn/article/i/jyjl/e/201807/20180702763503.shtml

Xinhua News 2019, ‘四大行各展身手，多元化服務「一帶一路」建設’ (Big Four Banks Provide Diversified Services for Construction of Belt and Road in Their Own Ways), viewed 31 May 2020, http://www.xinhuanet.com/money/2019- 04/24/c_1124409185.htm .

Yao, K 2019, ‘China Development Bank provides over $190 billion for Belt and Road projects’, Reuters, viewed 31 May 2020, https://www.reuters.com/article/us-china-finance-cdb- bri/china-development-bank-provides-over-190-billion-for-belt-and-road-projects- idUSKCN1R8095 .

Yicai 2016, ‘學者反思中企海外投資失敗案例：社會責任理解不到位’ (A Scholar’s Reflections on Failure Cases of Chinese Overseas Investment: Poor Understandings of Social Responsibility), viewed 31 May 2020, https://www.yicai.com/news/5010670.html .

Zhang, ZY 2016, 「一帶一路」背景下構建我國「走出去」企業社會責任軟實力’ (Building the soft power of corporate social responsibility of Chinese enterprises under the background of Belt and Road), 社會科學文獻出版社, 北京.

Zhao, GC 2016, ‘「一帶一路」背景下的中國軟實力透視’ (Survey on China’s Soft Power in the Background of Belt and Road),中東問題研究, no. 1, pp. 92-108.

Zhou, HM 2017, ‘推進「一帶一路」需要注重軟實力建設’ (Lay Stress on Soft Power Building in Promotion of Belt and Road), 人民週刊, no. 5, pp. 36-36.

Zhu, X 2019, ‘新開發銀行副行長、首席運營官祝憲在第五屆中國 PPP 發展（融資）論壇上的主旨演講’ (The Speech of Zhu Xian, the New Vice President and CEO of China Development Bankin the 5th China PPP Development (Financing) Forum), China Public Private Partnerships Centre, viewed 31 May 2020, http://www.cpppc.org/dwjrzlt/561.jhtml .

Zou, L 2015, 中國「一帶一路」戰略的政治經濟學’ (Political Economics of China's One Belt One Road Strategy), 上海人民出版社, Shanghai, pp. 139-154.

115

Chapter 3

Belt and Road Project Financing and Hong Kong

1. Background “Facilities Connectivity” is one of the “Five areas of connectivity”59 to be perused in the grand visions of BRI, as laid out in the Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road promulgated in 2015. Infrastructure is a major part of the ‘facilities’ involved, thus the domination of infrastructure construction, in particular communication infrastructures, ports, railways and roads, in the execution of the BRI. The projects are usually of massive scale and across national borders. The principles of “co- creation” and “sharing” in the vision statement lead to expectation that they should be jointly built through consultation between participating countries and companies. However, in practice there are quite a number of problems:

(1) Huge funding gap. There are more than 60 countries along the B&R. According to the estimation of the Development Research Centre of the State Council of China, the Asian Development Bank (ADB) and other institutions, the funding demand for infrastructure investments in Asia from 2010 to 2020 was around USD 8 trillion (OECD 2018). Supply of funding is limited due to the backward economic development of the countries along the B&R, resulting in huge funding gaps. The need for new financing is keenly felt from the research team’s interviews with B&R stakeholders. During overseas visits to Belarus, Cambodia, Vietnam and Myanmar, many respondents such as senior management from a China‐Belarus industrial park (respondent 217), a senior official who are responsible for industrial policy from Vietnam Government (respondent 313) and a senior official who are responsible for investment from Myanmar (respondent 376) had expressed their hope for more Chinese investment for infrastructures and economic development.

(2) High investment risk. The economic, political and social environments of countries along the B&R are complex. The laws, languages, cultures and religions of different countries differ significantly. Thus, many projects have encountered unexpected obstacles. For example, respondent 256 and 260 who are diplomats from two SE Asian countries admitted that, regarding acquisition of lands, different countries have different definitions and implementation policies for state-owned and private land. Moreover, it is not easy to deal with

59 “Five areas of connectivity” refer to policy co-ordination, financial integration, unimpeded trade, facilities connectivity, and people-to-people bond (NDRC, MOFA & MOFCOM, 2015). 116 local interests.

(3) Lack of funding from private and multilateral institutions. As aforementioned, due to the large investments in the B&R infrastructure projects and their associated risks, investors often perceived that these projects would result in investment losses. Therefore, private investors have weak incentives to participate in B&R infrastructure projects. As for traditional international multilateral financial institutions, they have long been dominated by Europe, the United States and Japan which have little interest in the BRI initiated by China;

(4) China as a major source of funding. Due to the absence of private investors and multilateral institutions, as the initiating country of the BRI with the world’s largest foreign- exchange reserves, China has assumed the role of a major funding source in BRI projects. For example, China has accounted for nearly half of the USD 100 billion in kick-starting the Asian Infrastructure Investment Bank (AIIB). China also invested another USD 40 billion to launch the Silk Road Fund, which has subsequently been increased to USD 55 billion after the pledge of an additional 100 billion RMB in April 2019. Together with other development funds that China initiated or participated in, Beijing had pledged 201.5 billion to various among different regions. (UNDP & CDB 2019).

Table 1 Development Funds China Initiated or Participated in Development Fund Amount pledged to the fund (billion USD) Asia Silk Road Fund 55 The Green Silk Road Fund 30 Silk Road Gold Fund 16 China-United Arab Emirates Joint Investment Fund 4 China-ASEAN Investment Cooperation Fund 1 Eurasia Sino-CEE Fund (ICBC-led) 11 Russian Federation-China Investment Fund 5 The China-Kazakhstan Production Capacity 2 Cooperation Fund China-Russian Federation Regional Development 1.5 Investment Fund China-Central and Eastern Europe Investment 1 Cooperation Fund (EximBank-led) Regional China-Russian Federation RMB Fund 1 Sino-Russian Innovation Investment Fund 1

117

Development Fund Amount pledged to the fund (billion USD) Latin America and Caribbean China-Brazil Investment Fund 20 China-LAC Cooperation Fund 10 China-LAC Industrial Cooperation Investment Fund 10 China Co-financing Fund for Latin America and the 2 Caribbean China-Mexico Fund 1 Sino-Mexico Energy Fund 1 Africa China-Africa Development Fund 10 China-Africa Fund for Industrial Cooperation 10 Africa Growing Together Fund (with AfDB) 2 China-Portuguese Speaking Countries Cooperation 1 Fund Global South South-South Climate Fund 3 South-South Cooperation Fund 3 Total 201.5 Source: UNDP & CDB 2019.

Apart from those development funds, Chinese policy banks such as Export-Import Bank of China and the New Development Bank established by the BRICS states (Brazil, Russia, India, China and South Africa), China has already invested hundreds of billion US dollars. respondent 003a who is a mid-level official from a Chinese financial regulatory unit and several scholars researching on B&R (respondent 001, 021, 190 and 191) agreed that as the number of B&R projects increases, it is difficult for China to undertake most of the capital investment. China face increasing risks amid the booming of Belt Road projects. According to The Handbook of Country Risk 2017, China Export & Credit Insurance Corporation has paid a total of USD 1.85 billion in compensation to state-owned enterprises for export and investment along the B&R countries.

More importantly, apart from becoming a major investor to the B&R projects, China has also become the main contractor of the B&R projects due to the strong infrastructure capabilities of the Chinese enterprises – Chinese technology for building bridges, roads and high-speed railways has been at the forefront of the world.

As a result, China provides funds on the one hand and undertakes contracts for projects on the

118 other. The process is like “transferring construction funds from the left pocket (loan) to the right pocket (project fee)”. Whilst respondent 217, 317, 318 and 360 who are senior managements working for different belt road Special Economic Zones strongly disagreed with the term of “debt trap”, international criticism of the B&R infrastructure projects is increasingly severe, with many critics arguing that the host countries of B&R projects are bearing excessive risks. If anything goes wrong with the projects, huge debt might be resulted. Assets might have to be sold in order to pay back the debt, incurring loss for the host country in the long run.

In view of the financing difficulties, it is believed that Hong Kong, as an important international financial centre, could play a role, and thereby expand its own business scale and achieve a win-win situation. The SAR Government signed the “Arrangements for Advancing Hong Kong’s Full Participation in and Contribution to the Belt and Road Initiative” (the Arrangement) in December 2017. The document states that “On the basis of compliance with relevant regulations on the financial market and the regulation of the financial field, all main stakeholders (including investment and financing parties and project operators) shall be encouraged to cooperate through the platform of Hong Kong in providing the Belt and Road Initiative with the funds necessary and diversified financing channels, including listing, syndicated loans, private equity funds, bond financing, and other services” (NDRC & HKSARG 2017).

Since 2017, we have conducted interview meetings with more than a hundred government agency executives related to the BRI, experts and scholars from research institutions; project managers of enterprises in Mainland China, Hong Kong and overseas directly involved in the BRI, as well as institutions and practitioners of professional services. We found that respondents from Mainland China and overseas are highly appreciative of the strengths of the financial sector in Hong Kong, including its ability to raise funds in the stock market, free flow of assets and a strong critical mass of professional financial support services.

We believe that these are the traditional advantages of Hong Kong. Apart from consolidating these existing advantages, we propose two additional roles of Hong Kong in relation to financing under the BRI: (a) to contribute towards the development of a B&R credit rating framework; and (b) to develop a new and adaptive project financing model.

2. An Overview of the Financial Sector in Hong Kong The financial services sector in Hong Kong is mainly composed of three major categories: (a) Banking industry; (b) Insurance industry; and (c) other financial service industries (such as securities, fund management, etc.). It has always been an important economic pillar of Hong 119

Kong. Employees in the financial services sector account for about 7% of working population in Hong Kong, and generate more than 18% of GDP in Hong Kong (Figure 1).

Figure 1 Percentage Share of Employment and Value Added in Respect of the Financial Services Sector, 2004-2018

Sources: Census and Statistics Department 2019a.

The output value of financial services sector in Hong Kong has maintained growth since 2016, with double digits in 2017 and 2018. In particular, the banking industry is the main source of growth. In 2016, the insurance industry benefited from the opening up to individuals in the Mainland to purchase insurance overseas, and received HKD 68.6 billion of new policy premium from Mainland visitors, which is double of the value in 2015.

Table 2 Employment and Value Added in Respect of the Financial Services Sector, 2016 to 2018

2016 2017 2018 Value Employme Value Employme Value Employme added nt added nt added nt Financial 428,900 253,100 480,500 258,500 532,800 263,000 services (+5%) (+3%) (+12%) (+2%) (+11%) (+2%) sector

120

2016 2017 2018 Value Employme Value Employme Value Employme added nt added nt added nt Banking 270,000 102,200 310,900 102,900 353,400 104,100 industry (+4%) (-1%) (+15%) (+1%) (+14%) (+1%) Insurance 88,800 62,400 93,400 65,400 96,300 67,800 industry (+19%) (+11%) (+5%) (+5%) (+3%) (+4%) Other 70,100 88,400 76,200 90,200 83,000 91,100 financial (-8%) (+1%) (9%) (+2%) (9%) (+1%) services industries *Value added at basic prices (million HKD) Source: Census and Statistics Department 2020.

The Hong Kong stock market is booming and ranks third in the world in terms of market capitalization after New York and Shanghai. As of May 2020, the total market capitalization of firms listed in the main board was as high as HKD 33.984 trillion. Driven by the boom in the listing of mainland companies, the market capitalization proportion of H shares and red chips rose from 4.78% in 1993 to 54.6% in 2008. However, with the recent introduction of overseas companies such as RUSAL, Budweiser Asia Pacific and Prudential, and the majority of mainland mega state-owned enterprises has already listed, the market capitalization of Mainland companies in Hong Kong Stock Exchange has now dropped to 28.87% of the total market capitalization.

Table 3 Statistics of Hong Kong Stock Market (as of May 2020)

Number of companies / HKD Total number of listed companies 2,482 1. H shares 281 (11.32%) 2. Red chips 177 (7.13%) Total market capitalization 33.984 trillion 1. H shares 16.13% (5.46 trillion) 2. Red chips 12.74% (4.32 trillion) Market turnover (First 4 months of 2020) 8.6 trillion (total) Source: HKEX Market Statistics, 2020.

The Hong Kong stock market has long been one of the world’s most popular places for initial 121 public offerings. In Hong Kong, capital flows are free and the tax rate is simple and low. Apart from paying the 0.25% stamp tax on stock trading, there is no VAT and dividend tax. Therefore, the trading cost is low. Moreover, Hong Kong stock traders come from all over the world and Hong Kong stocks have high circulation. The trading volume in the first four months of 2020 has reached HKD 8.6 trillion. The average IPO amount in the past 5 years has exceeded HKD 230 billion (Table 4). Apart from IPOs, Hong Kong ’s post-listing fundraising is even larger. Post-listing fundraising includes rights issue, allotment of shares and spinning-off of companies. The monetary amount of such activities could be fluctuating. Usually, when the stock market is booming, the company’s valuation is higher and the intention of rights issue and allotment of shares to raise capital would therefore be higher.

Table 4 Capital Raised in Hong Kong from 2014 to 2019

2014 2015 2016 2017 2018 2019 Total capital raised (billion HKD) 942.7 1115.7 490 581.4 544.1 -- IPO (billion HKD) 232.5 260.4 195.3 128.5 288.0 312.4 Post-listing fundraising (billion 710.2 852.6 294.7 452.9 256.1 -- HKD) Source: HKEX 2020.

The Hong Kong banking system is characterized by a three-tier system, which consists of three types of banking institutions, including licensed banks, restricted license banks and deposit- taking companies. These banking institutions are authorized to accept public deposits. The three tiers of banking institutions operate in accordance with different sets of regulation. As of April 2020, there were 165 licensed banks, 17 restricted license banks and 13 deposit-taking companies in Hong Kong. In addition, there are 42 local representative offices of overseas banks in Hong Kong.

Table 5 Number of Authorized Institutions in the Hong Kong Banking Sector (as of April 2020)

Number of institutions Licensed banks 165 Restricted license banks 17 Deposit-taking companies 13

122

Number of institutions Local representative offices of overseas 42 banks Source: HKMA 2020.

The insurance sector in Hong Kong is bound by the Insurance Ordinance as the main regulation and the Insurance Authority is the statutory regulatory body of the sector. As of June 2019, there were 162 authorized insurance companies in Hong Kong. Insurance agents and insurance brokers are intermediaries between policyholders and authorized insurance companies. An insurance agent has an appointment contract with an insurance company, and an insurance broker is not affiliated with any insurance company. As of March 2019, a total of 2,391 insurance agents and 70,418 personal agents have registered with the Insurance Agents Registration Board, and 798 authorized insurance brokers are registered under the Hong Kong Confederation of Insurance Brokers and the Hong Kong Professional Insurance Brokers Association (both are approved insurance brokerage bodies).

Table 6 Number of Authorized Insurance Companies (as of 19 May 2020)

Type of insurance business Number of companies Long Term 53 General 91 Composite 21 Place of incorporation Number of companies Hong Kong 95 Bermuda 12 United States 9 United Kingdom 10 Source: Insurance Authority 2020.

As for other financial services in the sector, it includes fund management and securities business. Most of the capitals of private equity funds managed by Hong Kong originate from overseas and are mainly invested in businesses in the Region. The Hong Kong Venture Capital and Private Equity Association aims to promote private equity fund and venture capital industry in Hong Kong. Currently, the Association has more than 460 corporate members (HKVCA, 2020).

123

Table 7 The Scale of Fund Management Businesses in Hong Kong (as of end of 2018)

Scale of Fund Management Businesses (trillion HKD) Asset management and fund consulting 16.447 Private banking and private wealth 6.6 management Trust holding assets 0.908 Total 23.955 Source: SFC 2019.

Bond issuers include the government, banks and enterprises. The bond market is dominated by government bonds, and the government issues bonds to finance various projects and operations. Investment banks act as underwriters to assist bond issuers in selling bonds in the market. In 2009, the Hong Kong government launched the government bond programme which aims to expand the local bond market. As of July 2019, the outstanding debt of the programme was HKD 95.7 billion. In addition, the Hong Kong government launched the iBond, an inflation- linked bond. The latest batch of iBond was issued in May 2016. In the same year, the Hong Kong government also launched the first batch of silver bonds to provide investment products with stable returns for elderly residents.

Table 8 Scale of Bond Market in Hong Kong (Outstanding Debt Instruments / in billion USD)

2017 2018 Public debt market 147.3 (+8.3%) 150 (+1.3%) Private debt market 82.5 (-2.6%) 86.5 (+4.2%) Total 229.8 (+4.1%) 236.5 (+2.4%) Source: HKMA 2019.

In addition, Hong Kong is the world's largest offshore RMB business hub and has launched the most diversified RMB investment, financing and risk management products in the world. Importers and exporters of economies under the BRI may use the payment system in Hong Kong for trade settled in RMB. Leveraging on liquidity of RMB in Hong Kong, investors could

124 finance projects through bank loans or ‘dim sum bonds’ or invest in diversified RMB financial products with their disposable RMB in Hong Kong. As the development of Hong Kong’s financial sector is mature, the salaries of employees working in these industries are generally high. As of the fourth quarter of 2019, the average monthly salary was HKD 21,138, which was 24% higher than the average salary of employees in selected industries of the Census and Statistics Department (HKD 16,986). It is also the second among the 7 selected industries.

Table 9 Average Salary of Employees in Selected Industries Comparing with Average Monthly Salary of All Selected Industry Sections

Industry section Salary status 2019 Q4 average Higher (+) /lower(-) monthly salary (HKD) than the average salary All selected industry sections 16,986 --- Personal services 21,672 27.59% Financial and insurance 21,138 24.44% activities Import/export, wholesale and 19,496 14.78% retail trades Accommodation and food 15,738 -7.35% service activities Manufacturing 15,530 -8.57% Real estate leasing and 15,033 -11.50% maintenance management Professional and business 13,315 -21.61% services Source: Census and Statistics Department 2019b, p.34.

The financial industry is very important to Hong Kong, but according to the report of the Global Financial Centre Index GFCI 27 issued by the British Z / Yen Group and the China Development Institute in 2020, the ranking order of the world’s top ten financial centres has changed significantly. For the first time, the ranking of Hong Kong fell out of the top three and dropped to sixth place, after New York, London, Tokyo, Shanghai and Singapore, with the total score reduced from 771 points to 737 points.

The ranking of this financial centre index is deduced from interviewing practitioners in the

125 global financial industry. The survey indicates that Hong Kong's ranking has fallen, possibly due to the weakening of Hong Kong's role under the Sino-US trade war and the social unrest in Hong Kong since the second half of 2019 which affected the global perception of Hong Kong.

Table 10 Ranking of Global Financial Centre Index GFCI 27

GFCI 27 (2020) GFCI 26 (2019) Ranking Score Ranking Score New York 1 769 1 790 London 2 742 2 773 Tokyo 3 741 6 757 Shanghai 4 740 5 761 Singapore 5 738 4 762 Hong Kong 6 737 3 771 Beijing 7 734 7 748 San Francisco 8 732 12 736 Geneva 9 729 26 706 Los Angeles 10 723 13 735 Source: Financial Centre Futures 2020, p.4.

However, it is worth noting that among the five "competitiveness" sub-items, Hong Kong still ranks 3rd to 6th. Among the industry breakdowns, 4 out of the 5 assessed industries in Hong Kong ranked top five, except the insurance industry. The overall score has dropped sharply but the sub-items still get such a high evaluation. This may indirectly reflect that although the image of Hong Kong is hit by various events, since each sub-item focuses on more specific details, rankings of these sub-items of Hong Kong are still ahead of those of Tokyo, Shanghai and Singapore.

Table 11 Ranking of Competitiveness and Industry Sectors

Hong Kong Tokyo Shanghai Singapore Ranking of Competitiveness Sub-indices Business 3rd -- -- 4th Environment Human Capital 3rd -- 6th 5th Infrastructure 5th 4th 9th 3rd 126

Hong Kong Tokyo Shanghai Singapore Financial Sector 6th 10th 9th 3rd Development Reputational & 4th 6th 9th 3rd General Ranking of Industry Sectors Sub-indices Banking 4th 5th 2nd 6th Investment 5th 12th 2nd 3rd Management Insurance 8th (Not in top 10th 4th 15th) Professional 3rd 12th 6th 5th Services Government & 4th 7th 6th 5th Regulatory Source: Financial Centre Futures 2020, pp.10, 37.

To promote the participation of Hong Kong financial sector in the BRI, the Hong Kong Monetary Authority established the Infrastructure Financing Facilitation Office (IFFO) in 2016. By encouraging different institutions to join, it formed a strong team of partners and organized activities such as training workshops, summits and investor roundtables to establish a platform for major stakeholders to collaborate and join hands in mega infrastructure investment and financing projects. Also, Hong Kong is a member of the AIIB. However, since Hong Kong still adheres to the principle of ‘big market, small government’, therefore, participation in the BRI is still largely regarded as a voluntary act of the private sector.

3. Methodology There are more than 263,000 practitioners working in the financial services sector in Hong Kong. Moreover, the range of businesses they cover (including banking, insurance, securities, fund management etc.) is wide and the types of enterprises using financial services are diversified. In view of these, it is difficult to set a questionnaire that is relevant for most practitioners in this sector. We thus resorted to using in-depth interviews as the major research method with the following groups of stakeholders identified:

• Managerial officials from the government or official institutions (25 respondents) to understand: a) the government’s policies in finance with regard to B&R projects; b) how the government assesses the enterprises’ needs; c) how the government responds 127

to the enterprises’ needs.

• Researchers, experts and scholars from think tanks (14 respondents) to understand: a) research ideas from and research method used by other researchers, and to take mutual reference; b) new ideas and thoughts so as to discuss and improve our research.

• Enterprises management, including senior management from financial institutions (59 respondents), so as to understand: a) their views on investment in B&R; b) their comments on financial services in Hong Kong; c) their expectations and recommendations for the financial service sector in Hong Kong; d) their comments on and suggestions for the government’s policies.

• Practitioners of the financial service sector (15 respondents) to understand: a) their views on B&R; b) how financial services in Hong Kong may support B&R; c) their expectations for and responses towards the enterprises; d) their comments on and suggestions for the government’s policies.

The sampling method of ‘snowball sampling’ was adopted in selecting respondents. The prerequisite of using this method is that a certain degree of connections among the unit of the population. Without in-depth knowledge about the population, researchers would apply this method to gain a comprehensive or partial understanding of the population. In practice, interviewees in the initial stage were selected. After that, new potential interviewees were recommended by these interviewees in the initial stage. Through further recommendations from different batches of interviewees, this process of respondent accumulation is similar to rolling a snowball. Snowball sampling is mostly applied when there is insufficient information about the population or in observational study. In the selection of respondents, we tend to interview more practitioners from the senior management because they are more familiar with the overall picture of the sector (please refer to the enclosed interviewees list).

4. Observations of Hong Kong’s role: expectations and gaps 4.1 Keen expectations on Hong Kong from government officials and enterprises from the Mainland

In in-depth interviews, numerous government officials, experts and scholars from the Mainland pointed out that Hong Kong has an active role to play in ‘financial integration’ among the ‘five areas of connectivity’. A number of interviewees (respondent 003a, 143, 027, 028 116, 143- 152 and 193) believed that there is room for improvement with regard to how China manages and finances B&R projects, and the roles that Hong Kong could specifically play are

128 summarized as follows:

• To prepare better financial budgets: budget was not well planned for many projects; some projects even did not go through feasibility study before leaders recklessly decided to implement the projects, such as the ‘unfinished’ Baha Mar resort project which cost a loss of billions of US dollars.60

• To supply talent resources: the institutional establishment and kickstarting of Silk Road Fund and AIIB face the challenge of shortage of professional talents in view of the large number of projects. Hong Kong financial service professionals should participate more actively.

• To set up benchmark projects: Hong Kong enterprises may actively explore suitable projects to invest in countries along the B&R, and leverage on funding such as the Silk Road Fund to build up a capital fund pool. Interviewees believed that comparing with those from the Mainland, Hong Kong enterprises may have more advantages in searching for projects to invest because Hong Kong enterprises are better at financial management.

• To take a lead by using reserves: Hong Kong’s foreign exchange reserves are about USD 300 billion. In fact, the Hong Kong Monetary Authority (HKMA) can take reference from Temasek in Singapore and take the initiative to play a leading role in investing in good projects, so as other investors can follow. This could make better use of foreign exchange reserves in Hong Kong.

• To establish a credit rating system: The international credit rating market is monopolized by several foreign companies such as Standard & Poor's, Moody's and Fitch. Although China has established rating agencies such as Dagong Global, China Chengxin, United Ratings, Golden Credit Rating and Shanghai New Century Zixin, but they lack the credibility to win international trust. If Hong Kong can make use of its advantages and establish a credit rating system specifically adapted to the BRI, then it would help companies to reduce the borrowing costs in BRI projects. It would also mitigate the foreign domination of the credit rating industry.

• To provide better financing channels: the fund-raising capacity of Hong Kong is unquestionable, and the amount of funds raised through IPOs has been among the top globally in the past years. However, the Hong Kong Stock Exchange mainly targets

60 The Baha Ma Resort Project is located at Nassau, the capital of the Oceanic island country of Bahama, with Barha Mar Ltd. (BML) as the developer (which is led by Bahamas businessman Sarkis Izmirlian) and CCA (Bahamas) Ltd as the prime contractor. The total investment is worth USD3.5 billion, and a loan of USD2.5 billion was provided by Exim Bank of China 129

mature companies; the B&R projects are regarded as high-risk investments and may not meet the requirements for listing in Hong Kong. Therefore, additional channels should be established to provide opportunities for these projects to obtain funding.

4.2 Hong Kong: Where There's a Will, There's a Way?

The financial service sector in Hong Kong often provides services to Chinese enterprises for their ‘go global’ strategy. Respondent 102 who is senior management from a Hong Kong cconsultancy firm suggested an example, drawn from a previous overseas project he had handled:

A Chinese company that manufactures plastic cans wants to establish a factory in the [Region A]. The financial services we provide include: a) Registration of offshore holding companies and setting up local branches; b) Opening of bank accounts; c) Financing arrangements, including negotiating loans with international and local banks; d) conducting on-site due diligence in the [Region A], such as checking the acquired land; e) providing tax advice.

Many Hong Kong interviewees (including respondent 102, 101, 154 & 247 from different firms and organizations) opined that mainland companies are willing to “go global” through Hong Kong not only because of Hong Kong’s professional skills, but more importantly, integrity:

The strength of Hong Kong lies with our institution and integrity. Businesses come to us because of our integrity. Since business owners may not prefer to deal with lawyers, accountants, or even the approval department in the investee countries, they look for us to act as intermediaries. Whenever they approach us, we can assure that we would provide satisfactory professional services there. In addition, as far as the entire legal system is concerned, Hong Kong can still give business owners confidence that if something goes wrong, the court makes a judgment, and the judgment will be enforced.

However, a number of other interviewees from Hong Kong are less optimistic when asked, in more concrete terms, whether BRI would generate new financial services business for Hong Kong. Respondent 102, 101, 154 and 247 from business sector and some Hong Kong government officials responsible for financial policies believed that: 130 a) professional services always ‘follow’ instead of ‘lead’ the enterprises. If the companies were willing to invest in countries along the B&R, professional services would have more opportunities, but not vice versa. Profitability is the main determinant whether an enterprise would invest in an overseas project or not. Unfortunately, the current situation is that enterprises are not keen on B&R projects, financial service providers can only sigh with disappointment. b) B&R projects are very risky; the risk is higher than investments in the Mainland, and the chance of losing money is much greater than that of making profits; c) The Mainland is tightening money supply (since 2017), and most enterprises’ funds are already very tight. Enterprises will only want to expand when they have excess money. Now they have difficulties in maintaining their existing businesses, it is unlikely that they would have incentive to ‘go out’ when they are struggling; d) Without sufficient supporting facilities, enterprises could not see how they would benefit from any substantial preferential policies (including special fund support). Without preferential policies, enterprises are reluctant to ‘go out’; e) The infrastructure of the countries along the B&R is under-developed, and the AIIB estimates that the future infrastructure funding gap would be as high as US$ 800 billion; f) At present, the BRI is still at the unilateral investment stage, that is, only Chinese enterprises go abroad to invest in the Belt and Road countries, and no businessmen from the Belt and Road countries are investing in China; and g) There exists exchange rate risk, as the countries participating in BRI may not use international currencies. Even if they used international currencies, their exchange rates may fluctuate widely.

In response to the keen expectations of mainland officials (respondent 027, 028 & 155), research institutions (respondent 001, 021, 193 & 232) and enterprises (respondent 116, 143- 152) many Hong Kong interviewees also believe that their specific expectations may not be met, or they may encounter great difficulties in their implementation:

• To prepare better financial budgets: If the project was approved by the leader’s reckless decision, then this is a political issue, not a financial one.

• To supplement talent resources: Hong Kong talents also want to go to the mainland for development, but there is a lack of formal channels to recruit professionals from Hong Kong. 131

• To set up benchmark projects: Hong Kong companies are market-oriented. The main consideration for investing in projects is whether they are profitable. The concept of "benchmark projects" is not popular.

• To take the lead by using reserves: The Hong Kong government adopts the principle of prudent financial management and will not easily spend its reserves. Moreover, the political situation in Hong Kong makes the government difficult to use money for B&R projects.

• To establish a credit rating system: This requires the establishment of a case database, and the rating system requires years to build up reputation through cases. Even Hong Kong regulators, such as HKMA and MPFA, unilaterally acknowledge that some rating agencies established in Hong Kong do not have much help because global investors do not perceive them as reputable. Therefore, such rating system should not be set up in a rush.

• To provide better financing channels: If the project can make profit, it should be easy for it to get listed according to the procedures.

In addition to the expectation gaps of Hong Kong, Hong Kong interviewees also reflected that there are not many clear channels for participation in the BRI. Respondent 176 clearly pointed out that communications between Hong Kong and the Mainland remains at high level, such as

Mr Zhang Dejiang (張德江), Chairman of the Standing Committee of the 12th National

People's Congress, visited Hong Kong in early 2018 to explain how Hong Kong could participate in B&R. To the interviewee, Mr. Zhang’s speech was general, abstract, and non- operational. To succeed, frontline and middle-level works are vital. Unfortunately, it seems that the Central and Hong Kong governments have not focused on creating the incentives to encourage their participation, apart from propagating general calls for support. From a more practical perspective, interviewees no. 027, 028 and 193 believed that Hong Kong can specifically participate in the BRI at four different levels:

• Strategic level: The two places could collaborate to conduct more preliminary studies to enrich the understanding of the B&R;

• Action level: Encourage enterprises and professional service bodies in China and Hong Kong to strengthen their connections and share experiences to facilitate project implementation;

132

• Capacity building: Hong Kong may provide more training to mainland peers to improve the professional quality of China and Hong Kong;

• Policy level: Hong Kong should take the initiative to get involved in national projects, actively give suggestions to the central government what policies are needed and explain how that may contribute to BRI if these policies were in place.

5 Discussion and Recommendations Despite the differences, we envisage sufficient common ground between the Mainland and Hong Kong actors on two areas. (a) Hong Kong is an important springboard for mainland enterprises to go global and has played a great role in raising funds. In 2018, the State Information Centre published the “Belt and Road Enterprise Impact Report” (Table 12). Among the top 50 companies, nearly half (23) were listed in Hong Kong. There is potential for innovations in the Hong Kong IFC platform to better serve the unique demands of B&R investment. (b) Credit rating is an important valuation tool for corporate lending or listing. If Hong Kong could establish a credit rating system for the BRI, not only will the BRI be promoted, but it will also provide diversified development opportunities for the Hong Kong financial services sector.

Table 12 The State Information Centre Top-50 Most Impactful B&R Enterprises Ranking Enterprises Ranking Enterprises 1st State Grid Corporation of 26th Guangdong Holdings China 2nd State Power Investment 27th Hebei Jinxi Iron & Steel 3rd China National Petroleum 28th Legend Holdings 4th China Petrochemical 29th Zenith Steel 5th Alibaba (China) 30th Hesteel Group 6th China Railway Construction 31st BAIC Motor 7th CRRC 32nd Evergrande Group 8th Huawei Technologies 33rd Dongfeng Motor Group 9th Bank of China 34th Hisense 10th China Mobile 35th Wanda Group 11th Country Garden 36th China National Offshore Oil

133

Ranking Enterprises Ranking Enterprises 12th Beijing Construction 37th China Communications Engineering Construction 13th Beijing Capital Group 38th ChemChina 14th Tencent 39th Fosun High Technology 15th China Huadian Corporation 40th China Construction Bank 16th Cathay Life Insurance 41st Shanghai Construction Group 17th Overseas Chinese Town 42nd Sany Enterprises 18th Bank of Communications 43rd Guangdong Province Navigation Group 19th Power Construction 44th Agricultural Bank of China 20th Bright Food 45th Jiangxi Copper 21st Masteel Group 46th JD.com 22nd HNA Group 47th GAC Group 23rd BYD 48th Guangzhou Yuexiu 24th Greenland Holdings 49th TCL Corporation 25th Midea Group 50th Shandong Ruyi Technology Source: State Information Centre 2018.

In line with the above ideas, we have engaged actively with mainland officials, think tank members, and Hong Kong stakeholders in the financial services to brainstorm possible pathways and visions. Three policy papers on the themes of "innovative investment and financing models" and "credit rating framework and the development of the Belt and Road bond market" are developed.61 Communications with stakeholders took place through multiple channels, including private meetings and seminars. Preliminary drafts were shared with key stakeholders to obtain feedbacks for refinements. The completed proposals have been shared with policy makers and disseminated to more than 2,000 members in the collaborative platform of the Research Centre for Sustainable Hong Kong (CSHK) at City University of Hong Kong.

61 These 3 policy papers are: Wong, M 2017, ‘Credit Rating and OBOR Bond Market Development: Issues, Challenges and Possible Solutions’, Policy Paper 1, Research Centre for Sustainable Hong Kong (CSHK), viewed 31 May 2020,https://www.cityu.edu.hk/cshk/files/PolicyPapers/CSHK%20Policy%20Paper%201.pdf; Wong, M 2018, ‘Belt-Road Credit Rating Agency (BRCRA): Outlining a Roadmap’, Policy Paper 5, Research Centre for Sustainable Hong Kong (CSHK), viewed 31 May 2020, https://www.cityu.edu.hk/cshk/files/PolicyPapers/CSHK%20Policy%20Paper%205.pdf ; Wong, M, Chan, LT & Li, KO 2019, ‘構建一帶一路新投融資模型 (Constructing a New Financing Model in Belt and Road)’, Policy Paper 12, Research Centre for Sustainable Hong Kong (CSHK), viewed 31 May 2020, https://www.cityu.edu.hk/cshk/files/PolicyPapers/CSHKPP12-CHI.pdf 134

The rest of this section summarises the ideas elaborated in the papers.

5.1 Developing an Innovative Investment and Financing Model62

Overview

According to UNDP and CDB, Chinese policy banks and commercial banks have provided more than 330 billion loan and credit lines to support B&R projects (Table 13). As discussed earlier in this chapter, the concentration of funding to Chinese institutions poses issues for China as well as for the host countries. There is a need to look into ways to diversify funding channels for more sustainable BRI financing.

Table 14 Chinese Financial Institutions in the BRI

Type of Name Key financial Main sectors Amount institution instruments (USD$ billion)

Policy China - Medium-and long- Infrastructure, 190 Banks Development term credit agriculture, Bank industry (est. up to - Equity investment in end of 2018) China Africa Fund, etc.

- Bonds

Export-Import - Concessional loans Infrastructure Over 100 Bank of China and industrial (Exim Bank) - Export buyer’s equipment (est. up to credit 2019 April)

- Guarantees

Commercial Agricultural - M&A Agriculture, 120 Banks Bank of China energy and (ABC) - Loans power (est. end of 2018) - Export credit

62 This section draws from the policy paper written by Wong, Chan and Li (2018). This paper has been revised and included in Li, LC (ed.) 2019, ‘解構‧倡議—專業服務與一帶一路’ (Belt & Road Initiative: Professional Services), City University of Hong Kong Press, Hong Kong. 135

Type of Name Key financial Main sectors Amount institution instruments (USD$ billion)

Bank of China - Corporate loans Infrastructure, 130.1 (BOC) energy - Bonds (est. 2015 – end of 2018) - Guarantees

China - Export credit Infrastructure, 9.8 Construction Bank (CCB) - M&A Transportation, (est. end of 2017) - Bonds Energy

China CITIC - Loans Infrastructure, Bank energy, - Equity transportation - Export credit

- Bond

China - Guarantee Energy, Merchants Bank manufacturing, (CMB) - Credit transportation, - Loan health, culture and tourism - Swap

- Bonds

Industrial Bank - Credit Green (IB) development, - Loans agriculture, infrastructure

Industrial and - Loans Infrastructure, 40

Commercial - Bonds agriculture, (est. end of Bank industry 2018)

of China (ICBC)

Shanghai - Credit E-commerce, Pudong - Loans Infrastructure

136

Type of Name Key financial Main sectors Amount institution instruments (USD$ billion)

Development

Bank (SPDB)

Investment Silk Road Fund - Equity Infrastructure, 11 Fund energy, - Loans (est. end of industry 2018)

State- China Export - Export credit Infrastructure, funded and Credit insurance industrial export Insurance equipment credit Corporation - Credit guarantee insurance (SINOSURE) company

Source: UNDP & CDB 2019.

For investors, attractiveness of a project depends on its market prospects, inherent quality and commercial value. For investment and financing model, a mega-project must first have an initiator (which can be government, enterprise, organization, or individual) as the actual investor of the project. The initiator obtains income through project investment and operation. In this process, the initiator has assumed the responsibility for financing the project. The initiator can obtain funds for development either by borrowing or by selling the project equity.

There are several main sources of funding for mega-projects: local government investment, third country government funding and loans, international multilateral financial institution organizations (such as World Bank, Asian Development Bank, AIIB etc.) funding and loans, and private investment (including financial institutions, enterprises and individuals). There are mainly two types of investment and financing modes of cross-border mega-projects: debt financing (including borrowing or issuing bonds) and equity financing (multiple participation in joint construction). In addition, market tools are further derived from these modes, such as BOT (build, operation, transfer), PPP (public-private partnership), BT (build and transfer), mezzanine financing, bridge financing, hybrid financing and various asset securitization products and leasing financing tools.

137

Model conception

In response to the risks and obstacles of cross-border infrastructure projects, we propose to build an investment and financing model specifically designed for cross-border infrastructure. This model can be divided into the following key parts:

(1) Build a major cross-border engineering project database. In view of the perception that the cross-border projects of the BRI are equivalent to "losses", we propose to establish a cross-border engineering project database. This project database will categorize cross- border projects with different attributes into three different forms: A) Public products – meaning that the project would be implement regardless of returns, and most of them are financed by the government (sole proprietorship or joint venture); B) quasi-public goods – concerns a certain degree of return but also concerns the nature of public interest, and can be led by the government or private financing (should be led by joint venture); C) Commercial projects – concern returns, led by private financing. The goal of the project database is to bring together different types of projects to better share them globally. In fact, many overseas public or private equity funds are currently interested in investing in infrastructure projects in search of stable returns. Establishing such a project database can allow interested investors to search for suitable projects for them.

(2) Formulate a screening mechanism for quality projects. Based on the experience of some excellent public utility companies (such as CLP Holdings, CK Infrastructure Holdings, Towngas etc.) to establish a screening mechanism, including whether the project has sufficient cash flow to stabilize dividends, high-quality management, and visualization of operating environment. A set of selection criteria recognized by all investors should be established in order to bring some eligible projects to the private market to raise funds.

(3) Securitization of major projects to attract private investors. After identifying quality projects, the initiators may consider packaging the projects for sale and attracting private investors to undertake. There are many ways to package the sale, including bonds, trust funds or equity transfers. In the process, other financial market participants will be required to enter the market (such as local exchanges, investment rating agencies, issuers etc). Here, Hong Kong ’s role as an international financial centre can be fully leveraged on. For example, the initiator may collaborate with IFFO of HKMA to use Hong Kong as a channel to establish information hubs for cross-border projects.

Hong Kong is an ideal investment and financing platform. Taking bond financing as an example, since the launch of the Hong Kong Stock Exchange Bond Connect in 2017, the 138

total amount of domestic bonds in China held by foreign investors has surged from about 900 billion yuan to 1.6 trillion yuan. In addition, Hong Kong has recently determined to develop into a green financial centre to promote green bond investment and financing, thereby attracting green project initiators and investors around the world to use Hong Kong to expand capital sources and find more favourable investment products. We believe that joining the B&R projects, Hong Kong will be able to play a greater bandwagon effect, and further play the role of intermediary. Also, this may attract more attention for the large- scale cross-border construction projects.

(4) After raising funds in the private market, we also need to establish a mechanism to encourage the initial investor to reinvest in new projects. In order to encourage the initial investors of the project to reinvest funds into new projects, the government and industry can study new methods, such as targeted tax incentives and more convenient investment measures.

Figure 2 An Innovative Model of Investment and Financing for Cross-Border Mega- Projects

Capital returning mechanism Project initiator Private investors

Facilitate new Various investments securitized

Establish a Formulate a screening Build a trade project database: mechanism: platform for securitized • Public • Cash flow projects • Quasi-public • Good financial condition

• Private • Quality corporate Source: Wong, Chan & Li 2019.

This new investment and financing model is characterized by the establishment of a project database to identify profitable or potential infrastructure projects, thereby reversing the common impression that B&R is equivalent to “capital loss”. After these projects successfully

139 gain support from private investors in the market, the project initiator can make the project truly "shared" (in terms of ownership and benefit) through dividends and other means. Conversely, if the project initiator re-invested the funds obtained from the market into new projects, the source of funds for the new projects will become more diversified.

According to the statistics of the Sovereign Wealth Fund Institute and Mutual Fund Directory, the assets under management (AUM) of the world's major sovereign funds and mutual funds have been steadily expanding in recent years. The AUM of the top 10 sovereign funds has reached USD 5.88 trillion while the AUM of the top 10 mutual funds has reached USD 29.3 trillion.

Because of the huge amount of money under management, these funds want to diversify their assets so as to reduce risk. They may find B&R projects attractive if they got to know through the establishment of project database and other means that B&R projects could also bring stable returns.

Table 15 AUM World Ranking of Sovereign Funds and Mutual Funds

Sovereign funds Trillion Mutual funds Trillion dollars dollars 1. Norway Government Pension 1.06 1. Black Rock Funds 6.44 Fund Global 2. China Investment Corporation 0.94 2. Vanguard 4.83 3. Abu Dhabi Investment 0.68 3. Charles Schwab 3.52 Authority 4. Kuwait Investment Authority 0.59 4. State Street Global 2.81 Advisors 5. HKMA Investment Portfolio 0.52 5. Fidelity Investments 2.56 6. SAMA Foreign Holdings 0.52 6. JP Morgan 2.08 7. SAFE Investment Company 0.44 7. PIMCO 1.97 8. GIC 0.39 8. BNY Mellon (Dreyfus) 1.80 9. Temasek Holdings 0.38 9. Amundi Asset Mgmt 1.69 10. Public Investment Fund 0.36 10. Capital Group 1.60 Source: SWFI 2020.

If 0.5% of the total assets of these funds (i.e. USD 35 trillion; USD 5.88 trillion of sovereign funds + USD 29.3 trillion of mutual funds) were invested in the B&R infrastructure projects, such amount would be USD 175 billion and equivalent to about 10 times of AIIB ’s total assets

140 in 2016 (USD 17.8 billion). This would substantially ease the funding gap of the BRI. However, it is never easy to attract these funds because the projects must first achieve a stable cash flow return. Therefore, the screening mechanism would be paramount. In addition, these funds may follow a lot of investment rules. For example, funds from the Middle East may pay more attention to whether the project complies with Islamic law. Funds from Europe and the United States may have higher requirements for the ESG of the project.63

Hong Kong’s Advantages

We believe that the Hong Kong financial industry is capable of overcoming these difficulties. In fact, since the 1990s, Hong Kong has listed Chinese companies on the Hong Kong Stock Exchange. For 30 years, the achievements have been obvious to all. State-owned enterprises have become one of the most important investment projects in the global financial market. The current obstacle for B&R projects is undoubtedly greater than that for the listing of state-owned enterprises, but the market depth and business opportunities involved should correspondingly be greater.

To successfully apply our proposed investment and financing model, a highly internationalized, market-oriented and investor-recognized economy is needed to facilitate, and Hong Kong seems to be an ideal candidate. In fact, the National Development and Reform Commission and the Hong Kong Special Administrative Region Government jointly announced in December 2017 "Arrangement between the NDRC and the HKSAR Government for Advancing Hong Kong's Full Participation in and Contribution to the Belt and Road Initiative" (the Arrangement), detailing the roles Hong Kong could play.

The research team leveraged on the Arrangement to survey the opinions of professional accountants in Hong Kong and overseas and found that the top two most recognized roles by the respondents were: Assisting in promoting RMB internationalization (70.4% agreed); providing diversified financing for projects (67.5% agreed).64 This shows that Hong Kong's advantages in financial services are still obvious.

63 For more detail about what Hong Kong can do for improving B&R ESG, please refer to Chapter 6 B&R Sustainability and the Role of Hong Kong. 64 For details, please refer to Chapter 4 on Accountancy Profession. 141

5.2 Developing a B&R Credit Rating Framework and B&R Bond Market65

Overview

The majority of developing countries along the B&R have small scale of economy and underdeveloped financial markets. Enterprises investing in these countries generally face difficulties and high costs in financing. Zhou Xiaochuan, governor of the People ’s Bank of China, wrote in China Finance that in the past countries along the B&R mainly relied on banks and other financial institutions in developed countries to provide financial services and funds (Zhou 2017). However, these financial institutions in developed countries are now underpowered. Also, they prioritized to save themselves first after the international financial crisis. Therefore, there have been difficulties to provide sufficient financial support for B&R projects. The resulting situation is that the main financing channels for enterprises that invest in B&R projects (mainly Chinese companies) are still policy financial institutions and commercial banks in China. In April 2019, the Ministry of Finance (2019) issued “A Framework for Sustainable B&R Bonds” for assessing the sustainability and risk management of debt financing in those low-income B&R countries. The framework aims to assist financial institutions for their debt financing decisions.

Zhou Xiaochuan believed that in order to facilitate investment and financing cooperation in the B&R, it is necessary to let the enterprises take the lead and promote marketization in order to maintain the sustainability of investment and financing. Our recommendation aims to highlight major issues on credit rating services and bond market development to support BRI.

Credit rating system as the important foundation of bond market

The three global credit rating agencies (CRAs), including Standard & Poors, Moody’s and Fitch, originated from the boom of railway bonds in the USA in 1900-1920. At that time, as an emerging economy in the world, USA built many new railways to support its economic development and needed massive funding for these long-term projects. A bond in fact is a type of loan that can be easily traded among investors. However, bond investors generally have less privilege than banks which can conduct site visits on borrowers’ operation and set strict repayment conditions. At that time, many of the railway bonds were sold to wealthy investors in Europe. In order to support global investors to buy the railway bonds, early founders of the CRAs set up their information services companies to sell financial information on railway

65 This section draws from two policy papers by Wong (2017, 2018). The 2017 paper has been revised and included in Li, LC (ed.) 2019, ‘解構‧倡議—專業服務與一帶一路’ (Belt & Road Initiative: Professional Services), City University of Hong Kong Press, Hong Kong. 142 companies and credit rating reports on bonds. At that time, information users paid fees to get credit ratings reports. This business model is later known as a subscriber-pay model. This business model had been popular for many years until the 1970s.

In the 1970s, bond issuance required the information of credit ratings as a part of issuance documents. This motivated bond issuers to willingly pay fees for credit ratings. Hence, the credit rating industry converted quickly from the subscriber-pay model to an issuer-pay model. Some stock exchanges and over-the-counter markets set minimum requirements on credit ratings, such as ‘BBB’ or better, for bond listing and bond trading. This motivates bond issuers to shop for better credit ratings. CRAs are frequently criticized for their inflation on grades to please bond issuers and compete for rating assignments.

In addition, credit ratings are generally included as a part of regulation. In the 1930s, after the stock market crash in 1929, US bank regulator prohibited banks from holding speculative investment securities, defined by grades below BBB under S&P rating scale. Under global banking regulation, banks following the standardized approach of Basel III are required to maintain more capital to support their bond holdings if credit ratings of the bonds are poorer, especially ‘BBB’ or below. Regulators on insurance companies and securities firms also implement capital requirements linked with credit grades of assets.

Before Dodd-Frank Act of the USA implemented in 2009-2016, investment grades refer to ‘BBB’ or better. Dodd-Frank Act sets an objective to remove credit ratings from laws and regulations. This echoes public criticisms on the quality of credit ratings prepared by the big three CRAs. Currently term “investment grade” in US laws and regulations are mostly rewritten with the term “low probability of default” or “low likelihood of default”. This replacement seems to easily remove credit ratings from the laws and regulations but provides very ambiguous guidelines on what is high risk or low risk.

Many funds targeting at conservative investors specify that fund managers must invest in investment-grade securities. Global banks in the interbank market generally expect to trade with other banks with Grade A or better. Some exchanges require market makers which quote bid-ask prices, such as equity option market makers, to have Grade A or better in their credit ratings.

In international supply chains, sellers may request buyers to provide bank guarantees if they do not have desirable external credit ratings or may adjust trade credit amount in accordance with buyers’ external credit ratings. In addition, business partnership between two corporations can be affected by external credit ratings. For bidding and working on long-term projects, corporations with good credit ratings are inclined not to partner with corporations with poor

143 credit ratings. All these indicate that credit ratings are embedded in business contracts and business decisions on daily basis. The information of credit ratings is not simply an issue for laws or the bond market. Removing information on external credit ratings from the market may even hinder economic activities. Therefore, the issue remains: how to assure that CRAs are reliable in their risk assessment.

Competition and choice in the credit rating industry

One argument on the failings of CRAs in serving the business community is the lack of competition. In 2010, OECD Competition Committee conducted hearings on competitions issues in the credit rating industry. The committee concluded that “the credit rating market is a natural oligopoly, with three CRAs accounting for more than 90% of the market”. Under new regulation of European Securities Markets Authority (ESMA) on CRAs in 2011, Europe opens up the credit rating services market to more players and promote competition among them. At the end of 2015, there are 26 registered CRAs which follow ESMA principles, close to the IOSCO principles, in providing credit ratings services. Table 16 obviously concludes that the big three CRAs remain dominant in EU.

Table 16 Market Share Credit Rating Activities and Ancillary Services of CRAs in EU

Registered Credit Rating Agency Market share Subtotal (turnover in 2015) Standard & Poor’s Group 45.00% 92.85% Moody’s Group 31.29% Fitch Group 16.56% DBRS Ratings Limited 1.89% AM Best Europe-Rating Services Ltd. (AMBERS) 0.93%

CERVED Group S.p.A. 0.88%

The Economist Intelligence Unit Ltd 0.80% Creditreform Rating AG 0.50% Feri EuroRating Services AG 0.40%

Scope Ratings AG 0.39% GBB-Rating Gesellschaft für Bonitätsbeurteilung mbH 0.34%

ASSEKURATA Assekuranz Rating-Agentur GmbH 0.21%

144

Euler Hermes Rating GmbH 0.21% Capital Intelligence (Cyprus) Ltd 0.14%

ICAP Group SA 0.12% Spread Research SAS 0.09% Axesor S.A. 0.05% 7.15% CRIF S.p.A. 0.05% ModeFinance S.A. 0.05% Dagong Europe Credit Rating Srl 0.04% ARC Ratings, S.A. 0.03% BCRA-Credit Rating Agency AD 0.02% EuroRating Sp. Zo.o. 0.01% European Rating Agency, a.s. 0.00% INC Rating Sp. Zo.o. 0.00% Rating-Agentur Expert RA GmbH 0.00%

Source: ESMA 2016, p.6.

The ESMA rules on CRAs involve high compliance cost for a CRA to keep its operation. It is believed that many small-sized CRAs in Europe will soon be extinct from the market given limited room for their revenue growth.

Table 16 suggests that the big three CRAs will remain excessively dominant in the near future unless there are governmental or inter-governmental efforts to regulate their market shares or set favourable rules to support the growth of new CRAs. Similarly, the market share of the three global CRAs in the USA and Hong Kong remains excessively dominant.

China's existing credit rating agencies are not strong enough to go abroad to compete with the three major credit rating agencies. One of the main functions of credit ratings is to predict future events, and its reliability and accuracy are reflected by its track records. This kind of record, i.e. "credibility", is the core asset of the rating agency, and its accumulation requires time and the amount of rating work. "Credit" further improves customer loyalty; therefore, the market position of rating agencies has "path dependence". China's credit rating system has been under construction for a short period of time, and the so-called "rigid redemption" in the past caused the rating to fail to fully play a role in identifying risks, which has affected the credibility of Chinese credit rating agencies in the eyes of investors.

145

A pathway for the B&R bond market and related credit ratings

Given the discussion above, we propose the following steps to facilitate the growth of the B&R bond market.

l B&R countries issuing bonds in China and HKSAR: Credit ratings, regardless of the issuer-pay or the subscriber-pay model of CRAs, come with bond issuances. Some bond issuances do not require any credit rating because investors know very well their credit history and their ability to repay in the future. To help establish their presence in the bond market and develop their credit history, a B&R government and its state- supported organizations can have their bonds issued in China and HKSAR. All these bonds can be traded via the China-HKSAR bond connect. The history of railway bonds in the USA demonstrates the importance of bond financing for infrastructure projects. With railway and road networks developed, B&R countries can further develop their economies.

l A CRA designated for B&R bonds: There should be at least one international CRA which is able to provide credit ratings on the B&R bonds. Currently the big three CRAs focus mainly on corporate and government bonds from advanced economies. The B&R bonds will include many railway bonds and infrastructure bonds. Most of the B&R countries are developing countries. Around 22 B&R countries are Islamic countries. The new CRA should be knowledgeable in assessing infrastructure project risk, country and business risk in developing countries and Islamic countries, and financial risk of bond issuers. Many developing countries complain that the big three CRAs are biased in rating the credit quality of developing countries. For instance, they are biased against most kinds of government intervention on economic development, with less emphasis on fundamental economic variables, such as budget surplus, public-debt-to-GDP ratio, economic growth, and trade account balance. Some research shows that credit ratings are linearly associated with the following variables of the Heritage Foundation, namely fiscal freedom, business freedom, labour freedom and financial freedom. Many developing countries, including BRICs, do have low scores on these variables. This issue on rating bias against developing countries is summarized in UNCTAD (2015). B&R countries are mostly emerging economies that require a different approach to look at their risk. The Framework for Sustainable B&R Bonds issued by MOF in 2019 addresses the above issues and provides guidance on how to take those specific economic variables into accounts in evaluating the sustainability of debt financing for those low-income B&R countries.

146 l A public CRA with new business model: A major criticism on the big three CRAs is the issuer-pay model which may induce bond issuers to shop for better ratings and the CRAs to inflate their grades. Will a public CRA solve this problem? Some scholars advocate the setup of a public CRA in the USA (see, for instance, Dioman, He & Polli 2009). Some suggest the establishment of an international CRA housed at the United Nations (see, for instance, Schroeder 2013). In 2012, Germany once attempted to create a European CRA to compete with the big 3 CRAs. In such a proposal, a foundation would be set up to support the public CRA, with first rating assignments mainly on sovereign bonds and later assignments extended to financial institutions in EU (see EPRS 2016). This proposal was discontinued because of non-availability of funds, concerns over possible lack of independence, and possible conflict of interests. Some were even worried that the public CRA might one day face legal actions by the USA if its credit ratings caused trouble to US companies. It should be admitted that prudent credit assessment cannot guarantee zero default. The issue is which institutional design will effectively lead to independent and unbiased credit assessment. A profit-driven CRA with issuer-pay model, very much the current model, has been criticized for its likely distorting rating conclusions. A public CRA with clear services mission may perform better. The public CRA can earn income from multiple sources: annual fees from all B&R countries, subscription fees from selling credit research information to global information subscribers, and fees from rating bond issuances. Financial markets in B&R countries may agree to a rule that bond issuers must get credit ratings from at least one pubic CRA. This public CRA will follow IOSCO principles in producing credit ratings. It will engage international analysts to participate in its various rating committees. In its first phase, the public CRA should focus on bonds issued by B&R governments, public sector enterprises and infrastructure project owners. l Other mechanisms to strengthen B&R bond market development: Bond issuance and the presence of CRAs are the first ingredients to build the B&R bond market. There are additional mechanisms that help the market grow faster, which include:

Ø Bond funds: There should be bond funds established for B&R bonds. A B&R bond fund can invest in a diversified portfolio of B&R bonds. This fund can be listed and traded in stock markets for both institutional and retail investors.

Ø Credit default insurers: Some insurance companies or investment banks or policy banks can offer credit default insurance on selected bond issuers. Protection buyers simply pay annual fees to hedge against default risk. With such insurance 147

contracts, B&R bond investors can easily convert high-risk investments into low- risk investments.

Ø Bank loans with B&R bonds as collateral: Selected B&R bonds are accepted as financial assets to back up loan financing. This means B&R bond investors can borrow funds for short-term financial needs with their long-term B&R bonds as collateral.

Ø Stock issuance and bond issuance: Stock issuance will help bond issuance. If a company have both stocks and bonds issued, bond investors can easily estimate the risk of the bonds with the company’s financial information and market movements of the stocks. If the stocks move continuously upward, the credit risk of the bonds should get lower.

The role of Hong Kong

The above-mentioned B&R bond market is an international bond market. This market requires the presence of international bond issuers, international bond investors and international financial intermediaries. HKSAR has a good track record as an international business and financial centre, with more than 190 foreign banking institutions operating in the territory and its common law system widely accepted by international merchants. To facilitate the growth of the B&R bond market and the proposed public CRA, the government, the financial regulators and professional organizations in HKSAR are advised to focus on the following initiatives:

l Amending listing requirements to facilitate B&R countries to issue their sovereign bonds and corporate bonds in HKSAR.

l Working closely with Islamic financial markets and Islamic financial institutions in B&R countries to develop an Islamic bond market in HKSAR to support fund raising for infrastructure projects.

l Liaising with major banks operating in HKSAR to develop an interbank market for trading B&R sovereign bonds, which may be denominated in Renminbi, SDR, USD, Euro, HKD or other currencies.

l Encouraging leading banks from B&R countries to set up their operation in HKSAR, which bring their borrowers and investors to the HKSAR capital market and arrange collateralized loans with B&R bonds as collateral.

148

l Supporting the establishment of the public CAR through liaising with Asia Infrastructure Investment Bank (AIIB), the BRICS governments and other stakeholders of the B&R bond market.

l Lobbying the planning committee of the public CRA to designate HKSAR as a target location for headquarter or major operation of the public CRA.

l Facilitating leading corporations from B&R countries to list their equities in HKSAR so as to make their risk information more transparent to the global market.

l Encouraging international asset management companies to set up investment funds in HKSAR on B&R equities and bonds.

B&R bonds aims to support B&R infrastructure development. Bond issuers will mostly include governmental entities, public sector enterprise and infrastructure project owners. Our study proposes that B&R governments and related entities should list their bonds in China and HKSAR to build their credit history in the bond market. When China-HKSAR bond connect is implemented, the two markets in Mainland China and HKSAR are connected to form one global market. In addition, there should be a public CRA which is familiar with B&R political and business environments. The public CRA will earn its income from multiple sources. Financial markets in B&R countries should set a rule that bond issuers must get credit ratings from at least one public CRA. All these will be able to mitigate possible conflict of interests from the current issuer-pay-model.

To further strengthen B&R bond market development, there should be other mechanisms, including B&R bond funds, credit default insurers on B&R bonds, lenders considering B&R bonds as collateral, and enterprises in B&R countries listing their stocks publicly.

Those latest regulations on CRAs in advanced economies aim to place less weight on external credit ratings. However, removing CRAs from the economies contributes nothing to financial market development and international trade development. The only option is to build a better CRA with less concern on conflict of interests. A public CRA with mixed business models will serve this role and support bond market development for B&R countries. With its experience in international business and finance, HKSAR possess strong competitive advantages in supporting the development of the international B&R bond market and the public CRA for producing credible credit ratings as proposed here.

149

6. Conclusion

From our interviews and research, we realize that stake-holders among China and Hong Kong have different assessments on the role that Hong Kong could play in supporting BRI financing. However, they also share some similar views which can serve to develop an approach to action.

We cannot downplay the difficulties for Hong Kong to participate in BRI projects. Hong Kong itself also faces a lot of challenges such as the forthcoming National Security legislation, deep socio-political divisions and unsettling social unrests amidst a range of deep-rooted issues. A recent analysis on the challenge to Hong Kong’s IFC role in the Economist in view of the deepening US-China tension and concerns over the prospect of “One Country, Two Systems” in Hong Kong illustrates the depth of the issues (The Economist, 2020).

Nonetheless, the professionals and entrepreneurs we talked to in this Study are in broad agreement that Hong Kong’s indisputable status as a world-renowned financial centre is impeccable in assisting the BRI vision to fruition.

In that spirit we have formulated proposals to further develop the IFC functions of Hong Kong, and believe that Hong Kong’s participation in the creation of an innovative and sustainable B&R investment and financing system and the development of a diversified international credit investment rating system would achieve win-wins for all interested parties involved:

a) The Chinese government and state-owned enterprises will benefit from a more robust fund raising and assessment mechanism duly addressing the sustainability risk factors, and no longer need to shoulder risks alone;

b) Market investors will benefit from more diversified investment opportunities;

c) Host countries of B&R projects will have more diverse resources to support their infrastructure projects.

d) Hong Kong’s International Financial Centre role will be strengthened with a broader group of players and a corresponding robust governance and regulatory framework to ensure project sustainability.

150

Enclosed Interviewees List Respondent Role Institution/Sector Time Venue Code Managerial officials from the government or official institutions 003a Mid-level official State financial regulatory 2016/07 Beijing unit, China

020 Senior official HKSARG (B&R) 2017/01 Hong Kong 027 Senior official Central government policy 2016/07 Beijing think tank with major role in B&R 028 Top-level official Central government policy 2017/03, Beijing, think tank with major role in 2018/03 Hong Kong B&R 112 Diplomat Consulate-General (a Middle 2017/08 Hong Kong East country), Hong Kong 120 Diplomat Consulate-General (a 2017/09 Hong Kong European country), Hong Kong 155 Mid-level official Central government unit 2017/11, Beijing (Commerce), China 2019/06 173 Senior official HKSARG (financial) 2018/01 Hong Kong 195 Senior official HKSARG (mainland affairs) 2018/04 Hong Kong 214 Senior Administration of China‐ 2018/06 Belarus management Belarus Industrial Park Great Stone 217 Senior China-Belarus industrial park 2018/06 Belarus management 256 Diplomat Consulate-General (a SE 2019/02 Hong Kong Asian country) 260 Diplomat Consulate-General (a SE 2019/02 Hong Kong Asian country) 283 Senior official HKSARG (B&R) 2019/04 Hong Kong 284 Senior official HKSARG (commercial 2019/04 Hong Kong affairs) 312 Senior official Vietnam Government 2019/07 Vietnam (industry and trade) 313 Senior High-tech start-up centre in 2019/07 Vietnam management Vietnam 334 Policy researcher Local government, 2019/08 Guangdong Guangdong (personnel)

151

Respondent Role Institution/Sector Time Venue Code 335 Diplomat Consulate General (a SE 2019/09 Hong Kong Asian country) Hong Kong 368 Diplomat Consulate General (a S Asian 2019/11 Hong Kong country), Hong Kong 368 Diplomat Consulate General (a S Asian 2019/11 Hong Kong country), Hong Kong 376 Senior official Myanmar Government 2019/11 Myanmar (investment) 379 Senior official Myanmar Government 2019/11 Myanmar (commerce) 387 Senior official Myanmar Government 2019/11 Myanmar (foreign affairs) 389 Senior official Myanmar Government 2019/11 Myanmar (planning and finance) 397 Senior official, A Special economic zone in 2019/11 Myanmar academic Myanmar Researchers, experts and scholars from think tanks 001 Top level official Policy think tank, 2016/06, Guangzhou Guangdong 2017/05, 2017/11 021 Senior researcher B&R policy think tank, 2017/02 Hong Kong & in-charge Guangdong 032 Senior Hong Kong statutory body 2017/05, Hong Kong management (international marketing) 2017/11 033 Senior Policy think tank, Hong 2017/05, Hong Kong management Kong 2017/08 131 Senior Central government unit 2017/03, Beijing, management (data research & analysis) 2018/06, Shenzhen 2018/08, 2018/10 190 Academic University, Beijing 2018/03 Beijing 191 Senior academic University, Beijing 2018/03 Beijing 193 Official, Central government policy 2018/03 Beijing researcher think tank with major role in B&R 232 Senior Central government policy 2018/10, Beijing management think tank with major role in 2019/02 B&R 311 Senior A major university in 2019/07 Vietnam management Vietnam 152

Respondent Role Institution/Sector Time Venue Code 320 Academic An academy of social science 2019/07 Vietnam in Vietnam 321 Academic An academy of social science 2019/07 Vietnam in Vietnam 353 Senior researcher Research institute, Sri Lanka 2019/10 Sri Lanka 378 Senior University, Myanmar 2019/11 Myanmar management, academic Practitioners of the financial service sector 116 Senior Hong Kong-based Chinese 2017/08, Hong Kong management, state-owned enterprise 2019/06 professional 143 Senior Chinese central enterprise 2017/11 Beijing management (communications) 144 Senior Chinese central enterprise 2017/11 Beijing management (media) 145 Senior Large Chinese enterprise 2017/11 Beijing management (finance) 146 Senior Chinese central enterprise 2017/11 Beijing management (engineering) 147 Senior Chinese central enterprise 2017/11 Beijing management (engineering) 148 Senior Chinese central enterprise 2017/11 Beijing management (energy) 149 Senior Chinese central enterprise 2017/11 Beijing management (financial institute) 150 Senior Large Chinese enterprise 2017/11 Beijing management (science and technology) 151 Senior Chinese central enterprise 2017/11 Beijing management (tourism) 152 Senior Chinese central enterprise 2017/11 Beijing management (energy) 165 Senior Hong Kong energy enterprise 2017/12 Hong Kong management 181 Senior Malaysian financial institute 2018/02 Hong Kong management 199 Senior Sri Lanka Government (port 2018/05 Sri Lanka management affairs) 200 Advisor, Hong Kong-based Chinese 2018/05 Sri Lanka professional state-owned enterprise 153

Respondent Role Institution/Sector Time Venue Code 201 Senior Chinese central enterprise in 2018/05, Sri Lanka management Sri Lanka (port) 2019/10 202 Senior Chinese central enterprise in 2018/05 Sri Lanka management Sri Lanka (port) 203 Senior Chinese central enterprise in 2018/05 Sri Lanka management Sri Lanka (port) 204 Senior Chinese central enterprise in 2018/05 Sri Lanka management Sri Lanka (port) 205 Senior Hong Kong branch of a 2018/05, Hong Kong management central enterprise 2018/06 206 Senior Hong Kong branch of a 2018/05, Hong Kong management central enterprise 2018/07 208 Senior Hong Kong-based Chinese 2018/05 Hong Kong management state-owned enterprise 209 Senior China-Belarus industrial park 2018/06 Belarus management 210 Senior Managing corporate of a 2018/06 Belarus management China -Belarus industrial park 211 Senior China-Belarus industrial park 2018/06 Belarus management 216 Senior Chinese R&D and 2018/06 Belarus management manufacturing enterprise (Intelligent Machines) 229 Senior Public utilities, Hong Kong 2018/08 Hong Kong management 247a Senior Hong Kong branch of a 2019/01 Hong Kong management diversified conglomerate 264 Legal University, Hong Kong 2019/03 Hong Kong professional (Director of a commercial programme) 265 Senior Cambodian branch of a 2019/03 Cambodia management Chinese state bank (commercial) 266 Senior Cambodian branch of a 2019/03 Cambodia management Chinese state bank (commercial) 269 Senior official Cambodian Government 2019/03 Cambodia (economics and finance)

154

Respondent Role Institution/Sector Time Venue Code 271 Management A Cambodian Special 2019/03 Cambodia Economic Zone 272 Senior Hong Kong manufacturing 2019/03 Cambodia management enterprise in a Cambodian Special Economic Zone 282 Senior Hong Kong branch of a 2019/03 Hong Kong management, central enterprise accounting professional 292 Senior A Hong Kong-based Chinese 2019/05 Hong Kong management state-owned enterprise (overseas operation) 310 Senior Vietnam branch of a Hong 2019/07 Vietnam management Kong-based enterprise (property development) 316 Senior Hong Kong-based 2019/07 Vietnam management investment conglomerate in Vietnam 318 Member & A Hong Kong chamber of 2019/07 Vietnam management commerce in Vietnam 337 Senior Hong Kong branch of a 2019/10 Hong Kong management, central enterprise professional (construction) 340 Manager Chinese central enterprise in 2019/10 Sri Lanka Sri Lanka (port), IT department 341 Manager Chinese central enterprise in 2019/10 Sri Lanka Sri Lanka (port) , administration department 342 Manager Chinese central enterprise in 2019/10 Sri Lanka Sri Lanka (port), procurement department 343 Senior Chinese central enterprise in 2019/10 Sri Lanka management Sri Lanka (port) 346 Manager Chinese central enterprise in 2019/10 Sri Lanka Sri Lanka (port), operation department 347 Manager Chinese central enterprise in 2019/10 Sri Lanka Sri Lanka (port) 155

Respondent Role Institution/Sector Time Venue Code 348 Senior Sri Lanka branch of a 2019/10 Sri Lanka management, Chinese central enterprise accounting (energy) professional 349 Senior Sri Lanka branch of a 2019/10 Sri Lanka management Chinese central enterprise (energy) 350 Manager Chinese central enterprise in 2019/10 Sri Lanka Sri Lanka (port) 351 Senior Chinese central enterprise in 2019/10 Sri Lanka management Sri Lanka (port) 352 Senior Sri Lanka branch of a Hong 2019/10 Sri Lanka management Kong-based telecom enterprise 355 Senior Sri Lanka branch of a 2019/10 Sri Lanka management Chinese central enterprise (construction) 356 Senior Hong Kong private enterprise 2019/10 Sri Lanka management (decoration) 360 Senior Sri Lank branch of a Chinese 2019/10 Sri Lanka management central enterprise (construction and real estate) 370 Senior Myanmar branch of a 2019/11 Myanmar management Chinese central enterprise (construction) 373 Senior Myanmar branch of a 2019/11 Myanmar management Chinese central enterprise (construction) 374 Senior Myanmar branch of a foreign 2019/11 Myanmar management financial institute 375 Senior Myanmar branch of a foreign 2019/11 Myanmar management financial institute 398 Senior Cambodian branch of a 2019/07 Hong Kong management transnational manufacturing enterprise (garment) Practitioners of the financial service sector 030 Senior legal Hong Kong education and 2017/04, Hong Kong professional research institute 2019/05 (international law)

156

Respondent Role Institution/Sector Time Venue Code 031 Senior Hong Kong regulatory 2017/04 Hong Kong management institution (finance) 101 Partner, Big-four accounting firm 2017/07, Guangdong, professional 2019/06 Hong Kong, Shanghai 102 Senior Hong Kong firm (project 2017/07 Hong Kong management, management) professional 117 Senior Hong Kong regulatory 2017/08 Hong Kong management institution (finance) 119 Senior Hong Kong chamber of 2017/09 Hong Kong management commerce (Chinese SOEs) 142 Partner Big-four accounting firm 2017/11 Beijing 154 Former senior Big-four accounting firm 2017/11, Beijing management 2017/12 218 Senior Guangdong legal firm 2018/06 management 247 Senior Chamber of commerce, Hong 2019/01 Hong Kong management Kong 247a Senior Hong Kong branch of a 2019/01 Hong Kong management diversified conglomerate 263 Senior official Cambodian government 2019/03 Cambodia (investment) 277 Member, Hong Kong - Thailand 2019/03 Cambodia business chamber of commerce 317 Manager A Hong Kong chamber of 2019/07 Vietnam commerce in Vietnam 354 Senior Sri Lanka branch of a 2019/10 Sri Lanka management Chinese central enterprise (construction)

157

References

Census and Statistics Department 2019a, ‘The Four Key Industries and other selected industries’, viewed 7 June 2020, https://www.statistics.gov.hk/pub/B71905FA2019XXXXB0100.pdf

Census and Statistics Department 2019b, ‘Quarterly Report of Wage and Payroll Statistics December 2019’, viewed 7 June 2020, https://www.statistics.gov.hk/pub/B10500092019QQ04B0100.pdf)

Census and Statistics Department 2020, ‘Hong Kong Monthly Digest of Statistics – The Financial Services Sector in Hong Kong (April 2020)’ , viewed 7 June 2020, https://www.statistics.gov.hk/pub/B72004FB2020XXXXB0100.pdf Dioman, He & Pollin 2009, ‘Why U.S. financial markets needs a public credit rating agency’, The Economists’ Voice, vol. 6, no. 14, viewed 7 June 2020, https://www.peri.umass.edu/media/k2/attachments/Why_U_S_Financial_Markets_Nee d_a_Public_Credit_Rating_Agency.pdf EPRS 2016, ‘The Case for a European public credit rating agency’, Briefing October 2016, European Parliament Think Tank, viewed 7 June 2020, https://www.europarl.europa.eu/RegData/etudes/BRIE/2016/589865/EPRS_BRI(2016) 589865_EN.pdf European Securities Markets Authority (ESMA) 2016, ‘Competition and choice in the credit rating industry’, viewed 7 June 2020, https://www.esma.europa.eu/sites/default/files/library/2016- 1662_cra_market_share_calculation.pdf Financial Centre Futures 2020, ‘The Global Financial Centres Index 27’, viewed 7 June 2020, https://www.longfinance.net/media/documents/GFCI_27_Full_Report_2020.03.26_v1. 1_.pdf

HKEX 2020, HKEX Fact Books 2014-2019, viewed 7 June 2020, https://www.hkex.com.hk/Market-Data/Statistics/Consolidated-Reports/HKEX-Fact- Book?sc_lang=en) HKEX Market Statistics 2020, ‘HKEX Monthly Market Highlights- May 2020’, HKEX, viewed 7 June 2020, https://www.hkex.com.hk/Market-Data/Statistics/Consolidated- Reports/HKEX-Monthly-Market-Highlights?sc_lang=en&select={A6DAF5DC-8335- 46E6-8D38-EBFB8BBEF0E0}

158

HKMA 2019, ‘The Hong Kong Debt Market in 2018’, viewed 7 June 2020, https://www.hkma.gov.hk/media/eng/publication-and-research/quarterly- bulletin/qb201903/fa1.pdf

HKMA 2020, ‘Monthly Statistical Bulletin April 2020’, viewed 7 June 2020, https://www.hkma.gov.hk/eng/key-functions/banking/banking-regulatory-and- supervisory-regime/the-three-tier-banking-system/) Hong Kong Venture Capital and Private Equity Association (HKVCA) HKVCA 2020, ‘About Us’, viewed 7 June 2020, https://www.hkvca.com.hk/en/AboutUs.aspx

Insurance Authority 2020, ‘Register of Authorized Insurers’, viewed 7 June 2020, https://www.ia.org.hk/en/supervision/reg_insurers_lloyd/register_of_authorized_insurer s.html

Ministry of Finance of People’s Republic of China 2019, ‘Debt Sustainability Framework for Participating Countries of the Belt and Road Initiative’, viewed 5 June 2020, http://m.mof.gov.cn/czxw/201904/P020190425513990982189.pdf

NDRC & HKSARG 2017, ‘Arrangement between the National Development and Reform Commission and the Government of the Hong Kong Special Administrative Region for Advancing Hong Kong’s Full Participation in and Contribution to the Belt and Road Initiative’, viewed 6 June 2020, https://gia.info.gov.hk/general/201712/14/P2017121400551_274123_1_151324198756 0.pdf.

OECD 2018, ‘China's Belt and Road Initiative in the Global Trade, Investment and Finance Landscape’, viewed 7 June 2020, https://www.oecd.org/finance/Chinas-Belt-and-Road- Initiative-in-the-global-trade-investment-and-finance-landscape.pdf

Schroeder 2013, ‘A template for a public credit rating agency’, Journal of Economic Issues, vol. 47, no. 2, pp.343-350.

Securities and Futures Commission (SFC) 2019, ‘Asset and Wealth Management Activities Survey 2018’, viewed 7 June 2020, https://www.sfc.hk/web/EN/files/ER/PDF/Asset%20and%20Wealth%20Management% 20Activities%20Survey%202018_EN.pdf 159

Sovereign Wealth Fund Institute (SWFI) 2020, ‘Top 93 Largest Sovereign Wealth Fund Rankings by Total Assets’, viewed 7 June 2020, https://www.swfinstitute.org/fund- rankings/sovereign-wealth-fund

State Information Centre 2018, ‘「一帶一路」企業影響力評價報告’ (Influence Evaluation Report of B&R Enterprises), viewed 7 June 2020, http://www.sic.gov.cn/News/614/9736.htm The Economist 2020, ‘Can Hong Kong remain a global financial centre?’, viewed 7 June 2020, https://www.economist.com/finance-and-economics/2020/06/06/can-hong-kong- remain-a-global-financial-centre

UNCTAD 2015, ‘Credit Rating Agencies: Junk Status?’, Policy Brief No. 39, viewed 7 June 2020, https://unctad.org/en/PublicationsLibrary/presspb2015d13_en.pdf

UNDP & CDB 2019, ‘Harmonizing Investment and Financing Standards towards Sustainable Development along the Belt and Road’, viewed 7 June 2020, https://www.cn.undp.org/content/dam/china/docs/Publications/Harmonizing%20Invest ment%20and%20Financing%20Standards%202019.pdf

Wong, M 2017, ‘Credit Rating and OBOR Bond Market Development: Issues, Challenges and Possible Solutions’, Policy Paper 1, Research Centre for Sustainable Hong Kong (CSHK), viewed 7 June 2020, http://www.cityu.edu.hk/cshk/files/PolicyPapers/CSHK%20Policy%20Paper%201.pdf

Wong, M 2018, ‘Belt-Road Credit Rating Agency (BRCRA): Outlining a Roadmap’, Policy Paper 5, Research Centre for Sustainable Hong Kong (CSHK), viewed 31 May 2020, https://www.cityu.edu.hk/cshk/files/PolicyPapers/CSHK%20Policy%20Paper%205.pdf .

Wong, M, Chan, LT & Li, KO 2019, ‘構建一帶一路新投融資模型 (Constructing a New Financing Model in Belt and Road)’, Policy Paper 12, Research Centre for Sustainable Hong Kong (CSHK), viewed 31 May 2020, https://www.cityu.edu.hk/cshk/files/PolicyPapers/CSHKPP12-CHI.pdf

Zhou, XC 2017, ‘共商共建「一帶一路」投融資合作體系’ (Joint Discuss and Construct an Co-operated Belt Road financing model), 中國金融, no. 9, pp. 6-8.

160

Chapter 4

The Hong Kong Accountancy Profession and Belt and Road

1. Background 1.1 Introduction

This Project focuses on the role of Hong Kong professional services in the Belt and Road Initiative (BRI). As a major constituent sector of the ‘professional and producer services’, one of the Four Pillar Industries in the economy of Hong Kong, the accountancy profession has become our focus of study. With the development of cross-border mega-projects since the BRI was proposed in 2013, doubts and questioning voices have emerged globally. Hong Kong has always been a bridge between China and the West and Hong Kong professional services sector has accumulated extensive practical experience for long in the past. In view of the increasingly complex international environment nowadays, can Hong Kong play a more prominent role in the development of BRI? As a major stakeholder of the professional services sector in Hong Kong, is the accountancy profession ready to meet the new challenges and seize the opportunities?

In 2016, we conducted a survey of the challenges facing the accountancy profession in Hong Kong which included the issue of BRI. At that time, interviewees generally had negative views on the BRI. Employees of various accounting firms felt that BRI development did not have much effect on them. In 2018, as part of our objectives of this Project, we surveyed the accounting practitioners’ views on BRI more systematically. We conducted in-depth interviews with 24 senior accountants and successfully surveyed 406 accounting practitioners from Hong Kong and overseas in the form of questionnaires.

We find that although BRI has aroused much controversy internationally, interviewees and questionnaire respondents generally hold a neutral and optimistic view about BRI. Among them, the views from the senior respondents are more positive. In addition, the interviewees have high expectations for Hong Kong's role in BRI. Most respondents agree that Hong Kong can help China move further internationally in terms of investment, financing and internationalization of RMB. Though optimistic, respondents also have provided objective assessment of their abilities, pointing out their shortcomings, especially in comprehending the tax laws and regulations in countries along the Belt and Road (B&R), as well as the lack of soft skills such as knowledge of the local languages and cultures. Further improvement in these areas is needed. 161

1.2 Overview of Accountancy Profession in Hong Kong

In Hong Kong, to become a certified public accountant, one must register with the Hong Kong Institute of Certified Public Accountants (HKICPA). HKICPA is the only body authorized by law to register and grant practicing certificates to certified public accountants in Hong Kong. The Chief Executive Officer of the Institute also serves as the Registrar. As of June 2019, HKICPA has 44,269 members, of whom 4,938 held a practicing certificate. The average age of HKICPA members is 43, of which 24,061 members were 44 or younger and 20,208 were 45 or older. HKICPA members can be divided into two categories: a) Professional Accountants in Business (PAIB); and b) Professional Accountants in Practice (PAIP). PAIPs are members who work in a firm that provides professional services (e.g. audit, tax or consulting). PAIBs are those employed or engaged in an executive or non-executive capacity in such areas as commerce, industry, service, the public sector, education, the public sector and NGOs. Among them, PAIBs account for the majority. The member distribution as follows:

Table 1 Distribution of HKICPA Members Taking up Leadership Positions Membership Percentage Total Professional Accountants in Business (PAIBs) 26,684 / 1. Executive and non-executive board member 483 1.8% 2. CEO, CFO, COO 5,006 18.7% 3. Group manager/ General manager 1,997 7.5% 4. Divisional manager 2,256 8.5% 5. Others 16,942 63.4% Total Professional Accountants in Practices (PAIPs) 8,240 / 1. Partner, director, sole practitioner 3,507 42.5% 2. Manager 1,939 23.5% 3. Senior accountant/ supervisor 1,408 17.1% 4. Others 1,386 16.8% Source: HKICPA 2019a, pp. 15-17.

The professional accounting firms in Hong Kong can be generally divided into three categories: a) the international ‘Big Four’ accounting firms (hereinafter referred to as the ‘Big Four’); b) second-tier accounting firms which have clients of listed companies (hereinafter referred to as ‘Non-Big Four’); c) small and medium-sized accounting firms without clients of listed companies (hereinafter referred to as ‘small and medium-sized firms’). The Big Four dominate the audit market of listed companies. As of 2018, with over 2200 listed companies in Hong

162

Kong, the ‘Big Four’ accounted for nearly 64% of the market share, and more than 95% of the market share in terms of market capitalization of listed companies.

Since the size of different accounting firms varies greatly, different firms have different views on the development of the profession in Hong Kong. For example, regarding the regulatory oversight reform on the profession which the Financial Reporting Council is empowered to impose heavy financial penalties on auditors for audit failure of listed companies, the ‘Big Four’ tend to support or not to oppose. However, those small and medium-sized accounting firms contended that the new regulation will constitute unfair competition, and excessive penalties would be overwhelming for them. On the other hand, in recent years, many local small and medium-sized firms have become targets of mergers of Mainland large accounting firms as a way for them to enter overseas markets. Thus, some small and medium-sized firms have more optimistic views on the prospects of the profession than the Big Four.

Table 2 Shares of Various Accounting Firms in Hong Kong by Audit Shares of Listed Companies in 2018 (as of 15 October 2018) Number of clients (firms) Market capitalization (Trillion) ‘Big Four’ 1,464 63.5% 55.8 95.2% Fifth to tenth 547 23.7% 1.16 2.0% Eleventh to twentieth 195 8.5% 0.68 1.1% Twenty-first and beyond 99 4.3% 0.99 1.7% Source: Yin 2018.

According to the employment survey released by HKICPA in July 2019, respondents who have obtained the qualifications of professional accountants have a median annual salary of HKD 600,000 to 699,000, and the average is more than HKD 835,000, or about HKD 70,000 per month, which is about three times higher than the median wage of HKD 18,000 in Hong Kong. For members who are not qualified as professional accountants, the median salary is HKD 200,000 to 249,000 and the average is HKD 280,000, i.e. monthly salary is about 23,000, which is also higher than the median salary in Hong Kong. This reflects that the accountancy profession in Hong Kong is still a relatively prestigious industry. Without professional qualifications, one could still earn higher salary than the general public. Moreover, one’s salary might be tripled if he or she obtained a professional qualification. The initial upward mobility is considerably attractive. However, according to another survey conducted by City University

163 of Hong Kong in 2016, professional accountants might encounter development bottlenecks after obtaining professional accounting qualifications (CSHK City University of Hong Kong & Society of Chinese Accountants and Auditors (SCAA) 2018). If measured by job satisfaction, we observed a U-shaped pattern with newcomers and senior professional accountants at the high ends of satisfaction, while middle-level people at the bottom.

Table 3 Remuneration Survey of HKICPA Members Annual remuneration Members (with professional Student Members (without (thousands HKD) qualifications) professional qualifications) 5,400 or above 1% 2% 3,400 – 5,400 1% 2,400 – 3,400 2% 1,800 – 2,400 2% 1,200 – 1,800 8% 1,000 – 1,200 8% 800 – 1000 13% 600 – 800 22% 400 – 600 27% 10% 300 – 400 12% 22% 200 – 300 4% 35% 150 – 200 25% 150 or below 6% Total 100% 100% Source: HKICPA 2019b, p.17

1.3 The Bottlenecks of the Hong Kong accountancy profession and the Belt and Road Initiative

The income of professional accountants in Hong Kong is not low, but their views on the prospects are not optimistic. In the HKICPA's career survey, only 9% of the respondents thought it was ‘optimistic’, and 65% thought it was ‘uncertain’ and ‘negative’. In this employment survey, the most worrying concern is the Sino-US trade dispute, which may have a negative impact on the global and Chinese economies. However, their view on Hong Kong's business environment tend to be ‘neutral’.

Table 4 HKICPA Members’ View on Economic Outlook over Next 18 Months Negative Uncertain Neutral Positive Economic outlook 28% 37% 26% 9% 164

Top five reasons for views on economic outlook: 1.Global economic outlook 11% / 8% 5% 2. United States-China trade 16% / 4% 3% relations 3. Mainland's economic momentum 10% / 6% 5% 4. Hong Kong property market 6% / 2% 2% outlook 5. Hong Kong business environment 3% / 3% 3% Source: HKICPA 2019b, pp.7-8

A 2016 survey conducted by the City University of Hong Kong specifically focused on the challenges of the practicing accounting professionals. It groups the problems faced by the accountancy profession into four major categories, including: a) Internal management of accounting firms; b) Regulatory and oversight environment; c) Accountancy profession environment; and d) Overall economic environment. The survey results indicate that the biggest problem that practicing accountants faced was not limited to external economic conditions or competition. Internal management and regulatory oversight also received much attention. In a 5-point scale with 5 as the highest score for factors that most affecting the development of the industry, long working hours (4.09) and high turnover rate (3.97) accounted for the first and second highest rated factors respectively.

Table 5 Factors Affecting Development of CPA Firms Small All Non-Big and Big Four P-value Respondents Four medium- sized Internal management of accounting firms Long working hours** 4.09 4.24 4.08 3.41 0.000 High turnover rate** 3.97 4.11 3.96 3.32 0.000 Accounting regulatory and oversight environment The regulatory 3.71 3.70 3.70 3.84 0.693 oversights become rigid Frequent changes of 3.73 3.61 3.77 3.97 0.050 accounting standards* Accountancy profession environment

165

Small All Non-Big and Big Four P-value Respondents Four medium- sized Intense competition among CPA firms in 3.60 3.69 3.54 3.53 0.289 Hong Kong Quality of young accountants getting 3.40 3.41 3.42 3.20 0.495 worse Limited capacity to 3.38 3.45 3.34 3.30 0.447 diversify service Overall economic environment Rising rents** 3.61 3.54 3.55 4.14 0.002 Worsening business opportunities in Hong 3.43 3.58 3.29 3.49 0.017 Kong* Worsening business 3.35 3.44 3.32 3.11 0.189 opportunities in China Worsening business 3.06 3.19 2.96 3.00 0.071 opportunities overseas Minimum wage 2.63 2.53 2.69 2.77 0.342 requirement Remark: Scores from 1 to 5, with 1 as ‘very minor impact’ and 5 as ‘very serious impact’. P- value is for measuring statistical significance of differences between groups. P≤0.05 means significant at 5% level (*) while P≤0.01 means significant at less than 1% level (**). Source: Li et al. 2017.

In the same survey, the respondents were asked to rank the 11 strategies that foster the development of the profession based on discussions among industry practitioners. The results as shown in Table 6 indicate that ‘Exploring the Belt and Road Business Opportunities’ was ranked the lowest, scoring 3.24 points (nearly neutral; with 5 as strongly agree). This reflects that the industry's views on the BRI are generally not positive. Many accountants at the time believed that though they all agreed that BRI will bring great opportunities, these opportunities were quite difficult to grasp. Hong Kong ’s lack of understanding of the countries along the B&R has affected the role that Hong Kong could play. Moreover, many accountants in Hong Kong have been facing operation difficulties locally. Without knowledge about the potential risks, it is difficult for them to expand their businesses and open offices in these unfamiliar countries along the B&R. 166

Table 6 Strategies That Foster the Development of the Accountancy Profession Small All Non-Big and Responde Big Four Four medium- nts sized 1. Invest in IT to enhance efficiency 3.91 4.01 3.80 4.00 2. Follow closely the global changes in accounting standards and regulatory 3.86 3.95 3.79 3.86 oversight practices 3. Increase cooperation with CPA firms 3.73 3.71 3.74 3.79 overseas 4. Invest in expanding services in Environmental Social and Governance 3.70 3.78 3.66 3.57 reporting, risk management and internal control 5. Strengthen inspection on 3.66 3.72 3.59 3.76 malpractices in the profession 6. Expand non-core services 3.65 3.81 3.51 3.71 7. Increase cooperation with CPA firms 3.59 3.62 3.57 3.58 in Mainland China 8. Strengthen Continued Professional 3.60 3.58 3.58 3.81 Education (CPE) 9. Conduct training in resolving ethical 3.56 3.59 3.53 3.67 dilemmas in workplace 10. Raise the qualification requirements 3.56 3.61 3.49 3.78 11. Leverage on the BRI 3.24 3.29 3.16 3.50 Remark: Scores from 1 to 5, with 1 as ‘mostly disagree’ and 5 as ‘mostly agree’. Source: Li et al. 2017

2. Methodology 2.1 Background Information

In early 2017, the research team started this project by surveying the background of the accountancy profession in Hong Kong and its participation in the Belt and Road from a variety of literature. The information we covered includes a) HKICPA annual reports; b) HKICPA Career Survey; c) Statistics and surveys conducted by other accountancy associations; d) Statistics of the accountancy profession from the Hong Kong Trade Development Council

167

(HKTDC); e) Surveys on accountancy profession conducted by tertiary institutions, etc.

2.2 Focused Interview

Based on the background information collected, the research team conducted in-depth interviews with stakeholders in the accountancy profession to understand their views on the BRI which help us identify the issues and concerns for a large-scale questionnaire survey. We aimed to reach out to representatives from different types of consulting firms, commercial organizations and industries to enhance the representativeness of the interviews. We used the Snowball sampling method to connect with the interviewees through the social networks of the research team members. We successfully interviewed 24 people, 5 of whom were from the Big Four accounting firms; 9 were from the non-Big 4 accounting firms; 5 were from small and medium-sized accounting firms; and 5 were from business or industry representatives. Most of the respondents (18) have directly participated in the Belt and Road business.

The interviews focused on four main areas: a) When Hong Kong accountancy profession is facing development bottlenecks, do you want to explore more business opportunities through the BRI? b) Are there any advantages for professional accounting practitioners to participate in the BRI? c) In general, what specific roles Hong Kong can play? And d) What are the difficulties for Hong Kong accounting practitioners, or Hong Kong as a whole, in fulfilling these roles?

Table 7 List of Interviewees Respondent Role Institution Time Venue Code

002 Senior Professional organization 2016/06 Hong Kong management

003 Partner Professional organization / 2016/06 Hong Kong Small and medium-sized firm

031 Senior Hong Kong regulatory 2017/04 Hong Kong management institution (finance) (Former BIG Four Partner)

036 Partner Big Four firm 2017/06 Hong Kong

168

Respondent Role Institution Time Venue Code

048 Partner Big Four firm 2017/05, Beijing, Hong 2017/06 Kong

049 Partner Big Four firm 2017/06 Hong Kong

101 Partner Big Four firm 2017/07, Guangdong, 2019/06 Hong Kong, Shanghai

125 Senior Professional organization / 2017/09 Hong Kong management Non-Big Four

126 Former senior Professional organization / 2017/09 Hong Kong management Non-Big Four

142 Partner Professional organization / 2017/11 Beijing Non-Big Four

157 Office-bearer Professional organization / 2017/12 Hong Kong Non-Big Four

158 Senior Commercial organization 2017/12 Hong Kong management

161 Senior Non-Big Four firm 2017/12 Hong Kong management

162 Partner Non-Big Four firm 2017/12 Hong Kong

163 Senior Non-Big Four firm 2017/12 Hong Kong management

164 Senior Non-Big Four firm 2017/12 Hong Kong management

165 Senior Commercial organization 2017/12 Hong Kong management

166 Partner Small and medium-sized 2017/12 Hong Kong firm

169 Partner Small and medium-sized 2017/12 Hong Kong firm

169

Respondent Role Institution Time Venue Code

170 Senior Commercial organization 2017/12 Hong Kong management

171 Senior Non-Big Four firm 2017/12 Hong Kong management

172 Partner Small and medium-sized 2017/12 Hong Kong firm

304 Senior Small and medium-sized 2019/07 Vietnam management firm

367 Senior legal Commercial organization 2019/10 Telephone Professional

2.3 Questionnaire Survey

To further verify our understanding from the background information and the generalizability of the views from the in-depth interviews, we collaborated with the Society of Chinese Accountants and Auditors (SCAA) to conduct a questionnaire survey online and offline from January 26 to April 10 in 2018. The questionnaire contains six sections: (1) Evaluation of the impact(s) of the BRI; (2) Eagerness of participating in the BRI; (3) Conditions necessary for participating in the BRI; (4) Self-assessment of the necessary conditions; (5) Types of services that individuals could provide in the BRI; and (6) Views on the role of Hong Kong in the BRI. We successfully collected 406 valid samples.

Among the respondents, there were 248 males, accounting for 61.1% and 158 females, accounting for 38.9%. The age distribution of the respondents was fairly even, with 27.1% under 34 years old, 28.8% between 35 and 44 years old, 26.1% between 45 and 54 years old, and 18% over 55 years old. As for the respondents' work areas, 300 (73.9%) were from Hong Kong, and 106 (26.1%) were from the Mainland and overseas. There were 170 working in accounting firms, accounting for 41.9%, and 236 non-accounting firms, accounting for 58.1%.

2.4 Sharing with the Profession and Feedback

We shared our findings from the in-depth interviews and questionnaire surveys with different stakeholders including representatives of the accountancy profession through multiple

170 channels. Based on further discussions and feedback obtained, we have formulated a series of recommendations. The sharing channels include: a) A press conference was held in early May 2018 to disseminate our findings of the questionnaire survey. The press conference was well attended by major media organizations such as TVB, Hong Kong Commercial Daily, Hong Kong Economic Journal, CNC, and Sing Tao. At the press conference, the research team and representatives from SCAA reported the survey findings and answered questions from reporters. b) On 18 May 2018, the PI was invited to deliver a presentation of the survey findings at the SCAA 105th Anniversary Celebration Gala Dinner and World Chinese Accountants Conference Opening Ceremony with more than 500 guests (including the Chief Executive of HKSARG) attended. SCAA highly appreciated our study’s contribution to the discussions among participants in their 2-day conference c) A report was published and widely disseminated to research institutions, relevant government departments, public libraries, professional associations, accounting firms and consulates in Hong Kong. d) Two B&R professional training workshops were jointly organized with Deloitte and Ernst & Young in September 2017 and March 2018 respectively. The training workshops not only provided opportunities for the speakers to share relevant knowledge and practices related to the BRI but also facilitated exchanges of ideas with the participants. e) Continuous sharing and discussions with practitioners in the accountancy profession on individual and group basis.

3. Research Findings 3.1 In-depth Interviews

The discussions during in the interviews mainly focus on the following four questions:

Do you want to explore more business opportunities through the BRI?

The 24 interviewees from the industry basically agreed that it would be beneficial for the industry to explore more business opportunities through the BRI. However, among the interviewees, they had slightly different views on whether the BRI could really bring benefits. Those who advocated for expanding new businesses in countries along the B&R, a Partner from a Small Medium-sized firm (respondent 003) believed that the scope for business

171 development in Hong Kong is limited. Respondent 157 who is a Non-big Four office-bearer shared the same view that while the growth in the number of Hong Kong companies has slowed down, there are more accountancy graduates joining the profession. Therefore, the job market of the industry is saturated. In addition, as respondent 161, 162 and 163 pointed out, the development of the accounting profession in Mainland China become more mature, they have less reliance on accounting professionals from Hong Kong. These two factors together lead to the need for Hong Kong accounting professionals to explore business opportunities overseas.

However, interviewees (such as respondent 002, 171 & 172) who held the opposite opinion believed that although their traditional business such as bookkeeping, auditing, etc. has indeed reached its bottleneck, but corporate advisory services and IT consulting are still promising. In addition, their professional knowledge like international accounting standards may not be applicable to countries along the B&R, and the risk of going abroad is not necessarily lower than staying in Hong Kong.

Can the accountancy profession in Hong Kong truly benefit from the BRI? A senior management (respondent 163) from one of the top 10 accounting firms shared his success experience on providing ‘one-stop’ services to his clients who participated in BRI projects which other accounting professionals in Hong Kong may take reference:

• Arranged pre-project investigation for the clients, such as reviewing statistical data, performing on site market analysis, and conducting feasibility studies;

• If the project was feasible, different investment models would be explored, such as setting up a new company or acquiring an operating company. If the clients decided to pursue an acquisition, then they would provide their professional services in due diligence examination.

• Provide business consulting services for the clients. For example, a Hong Kong manufacturing company planned to operate in Qianhai, but the policy does not allow manufacturing companies to have factory there. The company was then advised to separate its design department from its factory. The spin-off design department became an independent company and was allowed to operate in Qianhai.

• Provide consulting services on corporate governance or secretarial services for the clients, such as assistance in recruitment and purchase of labour and related insurance. These are all important areas of work affecting the smooth operations.

• Provide audit services for the clients’ annual financial statements.

• Provide financial advice for scale-up clients to source funding.

172

• Provide IPO services for more established clients when they plan for going public.

The above-mentioned professional services are not limited to B&R projects. However, it is likely the BRI may increase the volume of business.

Are there any competitive advantages for professional accountants in Hong Kong?

Whenever we enquired about what are the competitive advantages of professional accountants in Hong Kong, almost all interviewees would immediately list the following: a) High level of language proficiency; b) Global horizon; c) Flexibility in handling tasks; d) Professional conduct, and; e) Good technical skills.

However, when the discussions went deeper, the interviewees (such as respondent 169, a Partner from a Small and medium-sized firm and respondent 165, a Senior Management from an Energy Company with overseas projects along belt-road countries) always cast doubts towards their own off-the-top-of-head claims of strength. For example: a) For the newly recruited graduates, the English level of graduates from Mainland China and Southeast Asia is comparable to, if not better than that those from Hong Kong; b) Many graduates from the Mainland have more opportunities to study abroad than in Hong Kong; c) The social network of Mainland graduates is much stronger than that of Hong Kong graduates; d) the academic performance and proficiency in accounting skills of the Mainland and Southeast Asian graduates are comparable to those of their Hong Kong counterparts.

Among the competitive advantages mentioned, ‘professional conduct’ remains as the only one that all interviewees agreed that Hong Kong accountants prevailed. This is very important because many participants of the BRI projects are often criticized for lack of soft power – neglecting local community sentiments, causing environmental damages and sometimes violating local regulations. Hong Kong practitioners participated in BRI projects can exemplify the value of professional conduct to other participants, that would bring substantial benefits to B&R development.

What roles can Hong Kong play?

Comparing with the competitive advantages of professional accountants in Hong Kong, the interviewees are relatively more assertive about Hong Kong's roles in the BRI. Most of them mentioned the notion of ‘super-connector’. Respondent 48 and 49 and 101 who are both from Big Four explained that in the past Hong Kong used to be a bridgehead for overseas capitals to 173 flow into China. After the BRI was proposed, the flow of capital has changed (now mostly flow from the Mainland to overseas). The role of Hong Kong, nonetheless, remains basically the same. In response to the accusation that such view entails that Hong Kong could continue to ‘live on its fat”, some interviewees (respondent 157, 161, 162 and 163) believed that whether it is ‘living on its fat’ or not is irrelevant, but it is more important to discuss whether Hong Kong can sustain these ‘fats’ (traditional advantages of Hong Kong), including: a) Maintain the leading position of free port of funds and attract enterprises to raise funds in Hong Kong; b) Maintain a simple and low tax system; c) Maintain rule of law; d) Provide a safe and comfortable living environment; e) Safeguard freedom of information; f) Free and inclusive society. As long as the above advantages are maintained, most of the interviewees believe that Hong Kong could play the role of ‘super-connector’ well in the BRI. Hong Kong could tap on ‘having a share of the cake ‘and thus benefit from a considerable amount of business opportunities.

What are the difficulties/challenges for Hong Kong in playing these roles?

Most interviewees believed that language barriers, unfamiliarity with regulations in other countries, unfamiliarity with local cultures and lifestyles, and difficulties in religious integration etc. are the common difficulties or challenges for Hong Kong in playing the above roles in BRI. However, some interviewees (respondent 125, 126, 162 and 163 who are experienced in dealing belt road projects) thought that these are not big concerns: a) Crime could happen anywhere. There are dozens of countries along the B&R and one can choose safer countries and areas (such as urban instead of rural areas) to develop; b) For language, there are plenty of talents in the Mainland, as there are a lot of universities that focus on teaching a great variety of languages of countries along the B&R. Also, people in many countries along the B&R can communicate in English. Moreover, respondent 101 who are from Big Four and responsible for coordinating belt road risk management, believed that the BRI takes decades to develop, and it is not too late for young people in Hong Kong to learn about it now; c) religious and cultural issues need more time to establish mutual understanding and respects. Long-term interactions could help solve the problem.

174

3.2 Questionnaire Survey66

Based on the observations from the focused group interviews, we designed a questionnaire covering 6 parts: (1) the evaluation of the impact of the BRI; (2) the intention to participate in the BRI; (3) the conditions required to participate in the BRI; (4) self-assessment of the necessary conditions; (5) types of services that individuals can provide in the BRI; and (6) views on the role of Hong Kong in the BRI.

Subtle changes in views on the BRI

The Chinese University of Hong Kong conducted a survey in 2016 when the BRI was launched. The survey found that more than half of the respondents felt that the BRI was unlikely to benefit individuals (Hong Kong Institute of Asia-pacific Studies 2016). The survey conducted by City University of Hong Kong in 2016 also had similar findings (CSHK City University of Hong Kong & Society of Chinese Accountants and Auditors (SCAA) 2018). Many respondents believed that the BRI has ambitious goals but without relevant policies for implementation.

In this survey, we again asked accounting practitioners about the B&R from a similar perspective. In the first part of the survey, respondents were asked to rate the development of B&R, with ‘1’ as the most negative, ‘11’ as the most positive and ‘6’ as the neutral score. Four levels of perceptions, including ‘overall development’, ‘regional impact’, ‘institutional impact’ and ‘individual impact’, are identified to reflect the macro to micro level of influence of the BRI.

The survey results showed that the respondents scored 7.05 points for the ‘Overall Development’ of the B&R, and the ‘regional impact’ and ‘Institutional impact’ also reached more than 6 points (i.e. the median). On the contrary, the ‘individual’ level of impact was 5.54 points, which was below the median. In general, these results were similar to those obtained two years ago, suggesting the BRI was perceived not being aligned with the individuals’ interests. In the focused group interviews, interviewed generally expected that China and the countries along the B&R route will continue to invest heavily in the B&R projects. With sufficient funding, the BRI projects would be beneficial for the overall economic environment as well as the regions where the projects are located. However, respondents still felt unclear whether they and their institutions could actually seize the opportunities. In sum, the results

66 This section draws from the report by CSHK City University of Hong Kong and Society of Chinese Accountants and Auditors (SCAA) (2018). Summary of the report has been included in the book: Li, LC (ed.) 2019, ‘解構‧倡議—專業服務與一帶一路’ (Belt & Road Initiative: Professional Services), City University of Hong Kong Press, Hong Kong. 175 obtained from the focused interviews and those from the questionnaire survey were considerably consistent.

Table 8 Respondents’ Views on the B&R Average Percentage Percentage Percentage Rating of positive of neutral of negative view view view Overall Development 7.05 69.2% 11.1% 8.9% Regional Impact 6.28 56.9% 16.5% 15.5% Impact to Institution 6.00 49.2% 20.2% 18.0% Impact to Individual 5.54 41.1% 25.6% 20.2% Remark: Scores from 1 to 11, with 1 as ‘most negative’, 11 as ‘most positive’ and 6 as ‘neutral’.

Further examination of the data through crosstab analysis leads to an interesting picture that illustrates some positive dynamic changes. We divided the respondents into three groups – ‘junior’, ‘middle’ and ‘senior’ – and found that the differences in rating among the three groups at the ‘overall’, ‘regional’ and ‘individual’ levels were statistically significant (p value less than 0.01). At different levels of judgment, ‘senior’ respondents are the most optimistic where ‘junior’ respondents are the least optimistic.

Among them, at the ‘individual’ level, ‘senior’ respondents gave a score of 6.03, which is above the median, while the ‘junior’ respondents rated below the median (4.49 points). We believe that the significance of this finding is that the ‘senior’ respondents are in the decision-making position, therefore, they are more sensitive to changes in the external environment than those in the ‘middle’ and ‘junior’ positions.

‘Senior’ respondents tend to shoulder more substantive operational responsibilities than middle and junior level respondents, so their assessments are often more direct. Therefore, compared with the survey conducted two years ago in which respondents from all levels believed that the effect of BRI was limited, the positive change exhibited by the ‘senior’ respondents in this survey is remarkable. This subtle change may reflect that some people are starting to realize the development opportunities brought about by the BRI instead of understanding it merely through visions and imaginations.

Table 9 Evaluations of BRI by Respondents at Different Levels of Position Average rating P-value Junior Middle Senior Total 176

Overall 5.46 6.68 7.53 7.02 0.000** Development Regional Impact 4.90 6.01 6.83 6.35 0.001** Impact to Institution 5.27 5.85 6.28 6.02 0.146 Impact to Individual 4.49 5.27 6.03 5.61 0.004* Remark: Scores from 1 to 11, with 1 as ‘most negative’, 11 as ‘most positive’ and 6 as ‘neutral’. P≤0.05 means significant at 5% level (*) while P≤0.01 means significant at less than 1% level (**).

This subtle change became more specific during our in-depth interviews with senior accounting practitioners. Although most of the senior practitioners may not have personally been involved in the B&R business, they all pointed out that they witnessed more and more peers and colleagues getting business deals from countries along the B&R. The areas involved include tax consulting, due diligence before M&A, corporate secretarial services and business strategy recommendations. They tend to have a more positive view on the future of the BRI because they witness more and more real cases happening around them. However, it should be noted that although the views of senior practitioners have changed, they have not been converted into direct business incomes at the moment, and there is not yet any impact on employee income and employment opportunities. Under such circumstances, it is not surprising that the views of the middle- and junior-level respondents on the BRI are significantly less enthusiastic than that of the senior respondents.

Different evaluations of the role of Hong Kong

The most important way for the Hong Kong professional community to get a share of the achievements of the BRI is to provide high-quality professional services to the BRI- participating Chinese and overseas enterprises. In fact, Hong Kong has been an important bridge between China and the Western world. Whether it was the Korean War embargo on China or China’s economic reform and opening up, Hong Kong has acted as an important gateway for foreign companies to enter China and Chinese companies to ‘go out’ to the world. In this development process, Hong Kong professional services, including the accountancy profession, have played a pivotal role and received generous returns, becoming one of the Hong Kong ’s Four Pillar Industries.

After the BRI was proposed, Chinese leaders also mentioned the role of Hong Kong on various occasions. Importantly, the National Development and Reform Commission and the Hong Kong Special Administrative Region Government jointly announced “Arrangements for 177

Advancing Hong Kong’s Full Participation in and Contribution to the Belt and Road Initiative” (the Arrangement) in December 2017, detailing the roles that Hong Kong could play. Based on this, our survey specifically asked the respondents if they agreed that Hong Kong could play the roles listed in the arrangement with ‘1’ as ‘mostly agree’, and ‘5’ for ‘mostly disagree’. The average scores of the 9 roles proposed in the arrangement range from 1.94 to 2.19 points which are all below the median (‘3’), indicating that the respondents all agreed on the proposed roles of Hong Kong, especially in ‘promote the internationalization of RMB’ (1.94 points), ‘provide a diversity of financing channels for B&R’ (2.01 points), and ‘establish a centre for international legal and dispute resolution services’ (2.04), which have scored relatively higher than the others.

These results are consistent with our in-depth interviews with senior accounting practitioners. Many interviewees believe that Hong Kong has become a hub for Chinese capital inflows and outflows when China has not liberalized its capital account yet. Outward investments from many Chinese enterprises have to channel through Hong Kong and vice versa. They choose to go through Hong Kong because Hong Kong’s financial infrastructure is mature, currency is freely convertible and circulated, and a sound legal system is maintained. The survey once again confirmed the respondents' affirmation of Hong Kong.

Table 10 Evaluation of the Roles of Hong Kong Average Agree Neutral Disagree

1. Promote the 1.94 70.4% 19.5% 4.9% internationalization of RMB 2. Provide a diversity of 2.01 67.5% 21.7% 4.9% financing channels for B&R 3. Promote the development of 2.04 67.0% 21.7% 6.9% the Guangdong-Hong Kong- Macao Bay Area 4. Establish a centre for 2.04 66.5% 20.9% 6.9% international legal and dispute resolution services 5. Participate in regional 2.05 70.0% 20.2% 4.9% economic cooperation agencies 6. Organize high-level forum 2.06 67.0% 22.2% 5.4% and international exhibitions on B&R

178

Average Agree Neutral Disagree

7. Strengthen cooperation in the 2.14 64.8% 24.1% 6.1% area of infrastructure through international connection 8. Develop a green bond market 2.12 60.6% 24.4% 7.7% platform 9. Develop high value-added 2.19 58.6% 27.1% 8.1% maritime services Remark: Scores from 1 to 5, with 1 as ‘mostly agree’, 5 as ‘mostly disagree’ and 3 as ‘neutral’.

Another interesting finding from the survey is that regarding the role of Hong Kong, there is a highly statistically significant difference between ‘respondents working in Hong Kong’ and ‘respondents working outside Hong Kong’ (p-value less than 0.01). ‘Respondents working outside Hong Kong’ agree more with the proposed roles of Hong Kong than ‘Respondents working in Hong Kong’ in their evaluation of each role. With regard to this finding, we discussed with some senior accounting practitioners and they put forward two different explanations to account for such a difference.

On one hand, some believed that ‘respondents working in Hong Kong’ may be a bit unduly humble as they tend to stress the challenges to Hong Kong's unique advantages and Hong Kong’s diminishing competitiveness, as the mainland economy develops. On the contrary, ‘respondents working outside Hong Kong’ are more appreciative of Hong Kong's unique advantages. As a result, ‘outsiders’ appear to be more optimistic than ‘locals’ with the prospect of Hong Kong. On the other hand, an alternative view suggested that ‘respondents working outside Hong Kong’ may not be able to truly experience the changes occurred and restrictions imposed on Hong Kong because they do not live or work in Hong Kong. Those who hold this view believe that Hong Kong locals are not necessarily ‘the baffled person on the spot’ (當局者迷), but rather they may have a more realistic understanding of the shortcomings of Hong Kong. If sometimes a bit overly critical.

Table 11 Evaluation of the Roles of Hong Kong by Respondents Working in Different Places Working Working in Average outside P-value Hong Kong Hong Kong 1. Promote the 1.94 2.03 1.63 0.000** internationalization of RMB 179

Working Working in Average outside P-value Hong Kong Hong Kong 2. Provide a diversity of 2.01 2.10 1.71 0.000** financing channels for B&R 3. Promote the development of the Guangdong-Hong Kong- 2.04 2.14 1.74 0.000** Macao Bay Area 4. Establish a centre for international legal and dispute 2.04 2.13 1.75 0.001** resolution services 5. Participate in regional 2.05 2.15 1.75 0.000** economic cooperation agencies 6. Organize high-level forum and 2.06 2.15 1.77 0.001** international exhibitions on B&R 7. Strengthen cooperation in the area of infrastructure through 2.14 2.25 1.81 0.000** international connection 8. Develop a green bond market 2.12 2.24 1.76 0.000** platform 9. Develop high value-added 2.19 2.32 1.79 0.000** maritime services Remark: Scores from 1 to 5, with 1 as ‘mostly agree’, 5 as ‘mostly disagree’ and 3 as ‘half- half’. P≤0.05 means significant at 5% level (*) while P≤0.01 means significant at less than 1% level (**).

Regarding the above two views, we believe that there are two points worth noting. First, although the ‘Respondent Working in Hong Kong’ gave a relatively lower evaluation for the proposed roles of Hong Kong, all the scores given to the 9 roles were all below 3 (with ‘1’ as mostly agree and ‘5’ as mostly disagree). It reflects that respondents’ evaluation of the role of Hong Kong remains positive. Second, ratings given by the ‘respondents working outside Hong Kong’ may reflect the broad aggregate comparative advantages of Hong Kong, while those from the ‘respondents working in Hong Kong’ reflect the frustrations of Hong Kong ‘insiders’ from further stretching the outer reach of performance due to actual life experience in recent years. The two group of respondents are responding from different subjectivities and contexts, thus giving different results.

It is crucial that Hong Kong could find a suitable position in the BRI and reflect on its weaknesses so as to improve its performance and competitiveness. However, in reality, Hong

180

Kong’s participation has so far been limited. For example, some senior accounting practitioners pointed out that Chinese companies along the BRI should be able to source international financing through Hong Kong to achieve risk diversification and profit sharing. However, over the past years, B&R projects are still mainly financed by Chinese policy banks and multilateral lending institutions. Hong Kong professionals do not have much role to play. Another example of discrepancy is the expectation of setting up a B&R legal dispute resolution centre in Hong Kong as Hong Kong legal sector does not have much business in countries along the B&R. As more and more BRI-related projects are launched, the demand for Hong Kong professional services would expectedly grow. The key concern is whether Hong Kong is prepared to seize the opportunities ahead.

Assessment of capability to participate in BRI

This survey attempts to assess the capability of accounting practitioners to participate in the B&R in two ways. The first part is the subjective self-rating of 8 aspects by the respondents (‘1’ as ‘very sufficient’ and ‘5’ as ‘very insufficient’). The highest scores given by the respondents were ‘integrity’ (1.84) and ‘Professional Ethics’ (1.92). As for those evaluated as insufficient (with scores above ‘3’ the median), there were ‘knowledge of local language’ (3.04) and ‘knowledge of local practice standards’ (3.16), and ‘understanding cultural differences’ (3.0). The overall score is 2.78, which is quite close to the median. It reflects that respondents hold a rather neutral attitude towards their capability to participate in the BRI.

Table 12 Self-evaluation of Respondents Average Median Personal 1. Able to communicate with people in 3.04 3.00 Level B&R regions in their language 2. Able to establish “guanxi” with people 2.93 3.00 in the B&R regions 3. Understand the accounting standards, 3.16 3.00 financial, legal and taxation systems of B&R regions 4. Understand the cultural differences of 3.00 3.00 B&R regions 5. Willing to work or travel frequently in 2.87 3.00 B&R regions 6. Experience in overseas business 2.70 3.00 7. Professional conduct 1.92 2.00 8. Integrity 1.84 2.00 181

Average Median Overall Overall, do you think you have already 2.78 3.00 got sufficient attributes/capability to participate in B&R projects? Remark: Scores from 1 to 5, with 1 as ‘mostly sufficient’ and 5 as ‘mostly insufficient’

The survey results suggested that even though respondents generally believed that their capability to participate in actual work needs to be improved, they were confident in their integrity (1.84) and professional ethics (1.92). The accounting profession attaches great importance to integrity and code of ethics, which was clearly confirmed in our 2016 survey. In that survey, although most of the respondents believed that the tightened supervision by the HKICPA would increase operating costs, 70% of the respondents still agreed that the Association needs to keep up with international standards. Accountants in general believe that integrity and professional ethics are the core competitiveness of the industry. Only by being rigorous, objective, impartial, and trustworthy could they outcompete their rivals. For example, Hong Kong accountants may work for corporate investment and financing business because audit reports they issued are widely recognized by investors around the world. Most Mainland Chinese companies would hire Hong Kong accountants for auditing when they come to Hong Kong for listing. When Mainland accounting firms prepare to develop overseas, they would first merge with some small and medium-sized firms in Hong Kong.

We believe that although ‘integrity’ and ‘professional ethics’ are intangible, the establishment of these ‘soft’ core values requires the mutual supervision and discipline of the entire industry in addition to the self-discipline of individual practitioners. The maintenance of such tradition is often more important than ‘hard’ technical training and requires more time and resources.

In addition to subjective self-rating, this survey also attempts to understand the respondents' capability to participate in the BRI from an objective perspective. Through in-depth interviews, we summarized the 10 service categories of accounting professionals and let the respondents select the service items they think are capable of providing (more than one option can be selected). The survey found that nearly half of the respondents chose the two traditional accounting businesses – ‘Bookkeeping & Accounting’ (49.8%) and ‘Audit & Assurance’ (49.5%). In contrast, only less than 30% of the survey respondents chose ‘Mergers and acquisitions’ (32.5%) and ‘Tax advisory’ (32.8%), ‘Corporate finance’ (30.5%), and ‘IPO Audit’ (21.4%).

182

Table 13 Professional Services That Respondents Believe They are Capable of Providing (When Participating in BRI)

Number of Percentage respondents 1. Bookkeeping & Accounting 202 49.8 2. Audit & Assurance 201 49.5 3. Corporate governance consultancy 151 37.2 4. Tax advisory 133 32.8 5. Mergers and acquisitions 132 32.5 6. Corporate finance 124 30.5 7. Corporate secretarial service 108 26.6 8. IPO audit 87 21.4 9. IT consulting 56 13.8 10. Liquidation services 25 6.2

This result suggested a clear gap when compared with the result of our interviews. This is because in the eyes of many senior accounting practitioners, enterprises participating in the BRI do not need traditional auditing and bookkeeping services, but one-stop problem-solving services provided by the professionals – including setting up companies overseas, doing due diligence on mergers and acquisitions, re-financing funds, filing tax returns, management consulting and planning for listing. Some senior practitioners directly pointed out that our survey results exactly reflect the serious mismatch between the service capabilities of the sector and the demand of the BRI. If the accounting profession wanted to develop business in the B&R, in addition to constantly upgrading to enhance its capacity, it must also actively expand its business cooperation network. Instead of struggling as a lone wolf, synergy with other peers of the industry should be sought in order to offer more diversified services to clients and open up more business opportunities. In addition, in view of the gaps between capabilities and demands, we believe that the professional bodies, the academia and the government should discuss how to improve the training mechanism and increase resources for training and business development so as to equip more practitioners with the capabilities to provide more diversified services.

Apart from the capability to participate, the questionnaire also explored the respondents’ intention to participate, including the intention of their ‘individual’, ‘senior management’, ‘subordinates’, ‘peers’, ‘government of their workplace’ and ‘clients’. With ‘1’ being the weakest and ‘11’ being the strongest, the survey results showed that respondents’ individual intention to participate is 6.65, which is slightly higher than the median (‘6’), meaning that the

183 respondents’ intention to participate is moderately high.

The survey results also suggested a very interesting phenomenon. In general, the respondents believe that their personal intention to participate is higher than that of their ‘subordinates’ (5.2), ‘peers’ (5.37), ‘clients’ (5.68 points) and even ‘senior management’ (6.14), but only lower than ‘government of their workplace’ (7.51 points). In other words, the respondents felt that the government is promoting the BRI and they wanted to participate, but their colleagues and clients were not as keen as them.

Table 14 Respondents’ Intention of Participation in BRI Strong Moderate Weak Average intention intention intention Personal 6.65 54.7% 39.4% 19.5% Senior Management 6.14 53.2% 16.3% 17.5% Subordinates 5.20 40.1% 17.5% 25.4% Peers 5.37 43.6% 14.5% 25.9% Government of workplace 7.51 69.2% 9.6% 12.1% Clients 5.68 48.0% 15.8% 18.2% Remark: Scores from 0 to 10, with 10 as ‘strongest’, 0 as ‘weakest’ and 5 as ‘neutral’.

We believe that such interesting phenomenon is caused by the fact that the prospect of the BRI is still unclear and the accounting practitioners are still exploring their potential opportunities. Therefore, though the personal intention is relatively strong, respondents tend to behave more cautiously in public. Such a cautious attitude would create an atmosphere that makes others think that they have reservations about the BRI.

4. Sharing with the Industry and Suggestions During and after conducting the focused interviews and questionnaire survey, we shared the research findings and results with accounting professionals to gather their feedback. In general, they agreed that our research results reflect the industry’s general views on the BRI. As for the problems identified in our study, we have the following recommendations.

184

4.1 Government

• The government should provide more subsidies (such as free venues) to HKICPA and other institutions to organize more seminars. If venue rental is waived, these seminars could be offered at lower fees or free of charge to attract more participants;

• The government could organize more professional expos (could be both in Hong Kong and overseas) to subsidize professional practitioners in Hong Kong to set up booths and publicize themselves so as to let interested potential clients of professional services get to know more about Hong Kong;

• The government should subsidize the Trade Development Council to set up more branches overseas so as to provide consultation services efficiently for Hong Kong companies / professionals going abroad;

• The government should subsidize other professional organizations to provide non- accounting training for accountants. Accountants in Hong Kong should upgrade themselves and seek for additional qualifications in addition to the traditional auditing profession. If the government is willing to subsidize other professional organizations (in addition to taxation, arbitration can also be another direction) to provide training to accountants, this would facilitate the transformation of the entire industry.

• The government could establish a more effective information and services platform. Information related to the B&R is now very scattered. Interactive features and one-stop service will benefit prospective users and encourage BRI participation;

• More international conferences, such as the annual Belt and Road Summit, could bring professionals from all over the world together. International conferences not only facilitate information exchanges, but also serve as an important opportunity for establishing multinational business network;

• Provide different ways of assistance in information search. For example, it is generally difficult for accountants to do company searches in foreign countries;

• Build more platforms for connecting with foreign countries. Some small and medium-sized accounting firms may take the initiative to do so, but more often they cannot afford the cost;

• The governments in Singapore and Shanghai have already established funds to encourage companies to go global. The Hong Kong government should also take the initiative such as providing funding to major professional organizations to raise their international profile.

185

4.2 Industry

• Accountants interested in exploring the BRI should establish better synergies and provide mutual assistance. Everyone has his or her own expertise and thus cooperation would open up more business opportunities;

• In addition to cooperation, accountants should also enhance their professional image to attract new clients;

• Accounting firms should be more active in establishing partnerships overseas;

4.3 Professional Bodies and the Education Sector

• Consider adding more B&R elements in their training or educational courses; these include holistic training and exposures to international relations and political economy, cultural studies and strategic management, in addition to foreign languages, laws and multi-lateral institutions.

• For universities, arrange more interaction and exchange activities for students from countries along the B&R and Hong Kong local students to enhance cultural understanding;

• Hong Kong students are encouraged to study at universities along the B&R countries;

• Establish more partnerships with educational institutions in countries along the B&R.

5. Conclusion Since the launch of the BRI, the Chinese government has repeatedly emphasized that this is a co-creation and sharing of international development plans. However, due to the lack of international funding support, many projects are mainly invested and financed by China, raising suspicions from other countries in the world that China seeks to control the projects with hidden motives. On the other hand, from the perspective of China, while undertaking the risk of project losses, it has been receiving much criticism from the international community, which was deemed as unfair. The reluctance of foreign capital to participate in the BRI is largely related to the impression that those projects will inevitably lose money. As for traditional international financial institutions, they have always been dominated by Europe, the United States and Japan. They have little interest in the BRI promoted by China. The Asian Infrastructure Investment Bank, initiated by China, is still in its initial stage of development with insufficient conditions to provide a favourable financing platform for cross-border infrastructure projects in Asia.

186

As the above gap suggests, B&R projects urgently need to seek a more diversified funding source to spread risks and share profits. Only when the project is more ‘internationalized’ can the BRI truly become a ‘co-creating and sharing’ development plan. In this process, Hong Kong does have a certain role to play. In fact, our survey has confirmed once again that respondents (whether local or overseas) affirmed the roles of Hong Kong, particularly the role of advancing the RMB internationalization and seeking funds to finance investment projects. Hong Kong has the advantages of sound rule of law, free capital access and efficient professional services. However, our survey also reflected objectively that there is a gap between the capability of accounting practitioners and the requirements of the BRI. Many respondents still only focus on providing traditional bookkeeping and auditing services. The abilities of providing services in M&A, financing, listing etc. need to be strengthened.

Due to the stagnation of business growth and the increase in operating costs, the upward mobilities of the middle and low-level employees in the accountancy sector are weakening, as pointed out in a previous study of the research team. The same study also revealed that many practitioners did not view the B&R as a way out. Our survey in 2018 reflected some subtle changes, that is, the attitude of senior practitioners (such as those partners) towards BRI has become more positive. Internationalization of the BRI is not only a way to improve the profession’s development in the future, but it should also bring new impetus to the strive of breaking through the bottleneck of professional services in Hong Kong. The key is that practitioners in the profession need to remedy their own weaknesses so that they could meet new challenges and grasp new opportunities. The adjustment of policies and business behaviours involved should be the common direction of endeavour for the government, the industry and the education sector.

187

References

CSHK City University of Hong Kong and Society of Chinese Accountants & Auditors (SCAA) 2018, ‘會計師與一帶一路意見調查報告’ (Report of BRI: Accountants Opinion Survey), viewed 7 June 2020, http://www.cityu.edu.hk/cshk/files/20180829- CSHK%20x%20SCAA%20Belt%20and%20Road%20Report.pdf.

Hong Kong Institute of Asia-pacific Studies 2016, ‘Survey Findings on Views on the Belt and Road Initiative in Hong Kong’, Chinese University of Hong Kong, viewed 31 May 2020, http://www.hkiaps.cuhk.edu.hk/wd/ni/20170612-114255_1.pdf

Hong Kong Institute of Certified Public Accounts (HKICPA) 2019a, ‘HKICPA Annual Report 2019’, viewed 7 June 2020, https://www.hkicpa.org.hk/-/media/HKICPA-Website/New- HKICPA/About- us/Annual_report/2019/annual_report_2019_eng.pdf?la=en&hash=938C2A0683BD6C 97CC31E4D6BF9D3437.

Hong Kong Institute of Certified Public Accounts (HKICPA) 2019b, ‘Career Survey 2019’, viewed 7 June 2020, https://www.hkicpa.org.hk/-/media/HKICPA-Website/New- HKICPA/News/communications/Membership- survey/HKICPA_Career_survey_2019.pdf?la=en&hash=EF4AAE200A28CBD0C2923 F7CB2C294D1

Li, LC, Mo, P, Chan, HM, Kam, CP, Wu, RS & Li, KO 2017, ‘Hong Kong Accountancy Profession in the Bottleneck’, in Li, LC et al. (eds.) Transcending the Bottleneck – Hong Kong Accountancy Profession, City University of Hong Kong Press, Hong Kong, pp.1- 14.

Yin, CY 2018, ‘2018 年，誰在審計港股？（附前 20 會計所名單）’ (Who is Auditing Hong Kong Listed Companies in 2018? (List of Top 20 Accounting Offices Attached)), YCY 會計行業觀察 , viewed 7 June 2020, https://mp.weixin.qq.com/s/oy1VdVUgLisIoT7c4tPA9g

188

Chapter 5 Hong Kong as Belt and Road Initiative Dispute Resolution Hub

1. Introduction Cross-border investment and M&A activities have become active since the launch of Belt and Road Initiative in 2015. According to the 2013 to 2018 statistics from the China Development Bank, the total number of contract-out projects along the Belt and Road (B&R) countries has reached US$125.78 billion (China Railway Group Limited 2019). The demand for legal services for dispute resolution has also been increasing, due to the differences in cultural, political and social systems between China and participating countries along the commercial activities. It is in this connection we explore the potentials of how the well-established status and reputation in rule of law and judicial system in Hong Kong can contribute to the Belt and Road Initiative. Under the principle of ‘One Country, Two Systems’ and the Basic Law, Hong Kong is part of China but has been guaranteed an independent judiciary and the power of final adjudication by the Court of Final Appeal. Hong Kong retains its common law system that has been practised for more than 170 years. Everyone in Hong Kong is equal before the law and has the rights to access to the courts, to confidential legal advice and choice of lawyers. Hong Kong Courts exercise judicial power independently, free from interference. Hong Kong’s global ranking in rule of law index is 16th (China ranks 76th), according to the World Justice Project (cited in Ng 2014). In the World Economic Forum’s World Competitiveness Index ranking, Hong Kong ranks third in overall score, while performance in institutional pillars, including the judicial system, government checks and balances power, social ethics, and performance of public institutions, ranked fifth in the world (China ranks 58th) (Schwab 2019). In July 2015, the Supreme People's Court (‘SPC’) of the People's Republic of China released ‘how the people's court may provide judicial services and protection on the Belt and Road Initiative (‘About the People's Court as ‘One Belt One Road’ Several Opinions on the Construction of Providing Judicial Services and Security ‘) (the ‘Opinion’)’, Justice He Rong, Vice-President of the Supreme People's Court of the People's Republic of China (PRC) at that time recognized the credibility, as well as the advantages of internationalization and professional talents of Hong Kong and supported Hong Kong’s role as an international dispute resolution centre along the Belt and Road Initiative (The Supreme People’s Court of The People’s Republic of China 2016). Hong Kong legal professionals found the high expectations from China encouraging. Mr. Rimsky Yuen, SC, JP, former Secretary for Justice, described Belt and Road Initiative as a ‘historic opportunity’ that can help to widen the market for Hong Kong legal professionals in his public speech in September 2015, two months after the ‘Opinion’ was published. However, we identified the expectation gaps between the institutional actors and Hong Kong professionals exist during our fieldwork study. While majority of our interviewees viewed Belt

189 and Road Initiative as an opportunity, they encountered difficulties in translating such opportunity into real-life benefits. The research team categorized the interviewees into 4 groups based on their professional qualifications: lawyers, barristers, arbitrators, and mediators. Many interviewees hold more than one professional qualification at the same time, while some interviewees do not obtain any of these qualifications. We found that interviewees who are qualified lawyers and barristers tend to have a more sceptical view towards Belt and Road Initiative but interviewees who are qualified arbitrators and mediators, or both, tend to have a more optimistic view about Belt and Road Initiative. The diverse views of the various different stakeholders in the professional services sector make us realize that in order for Hong Kong legal professionals to exert greater influences in the Belt and Road Initiative, it is important to strengthen Hong Kong’s role as an international mediation and arbitration centre. In two policy papers and a published journal article, members of the research team articulated proposals for this purpose and the key arguments are incorporated in this Chapter. 67

2. Methodology Hong Kong is a leading centre for dispute resolution in the Asia-Pacific region. We have identified that there are four types of legal professions, which are solicitors, barristers, arbitrators and mediators, provide litigation, arbitration, and mediation services. Hong Kong’s robust legal services sector includes plenty of legal professionals as shown in Table 1.

Table 1: Number of practitioners by types of legal professions

Type of Legal Professions Number of practitioners Solicitors68

67 The two policy papers are: Holloway, D, Lin F, Li, LC, Zheng XH, Kwok, MT 2018, ‘Strengthening Hong Kong’s Position as an Arbitration Hub in the Belt and Road Initiative’ (強化香港作為「一帶一路」倡議中國際爭議解決樞紐的地位), CSHK Policy Paper, No. 8.

Chan, CH & Lin, F 2018, ‘Dispute Resolution under the Belt and Road Initiative: Constructing an Effective Mediation Regime in the Guangdong- Hong Kong-Macau Bay Area’ (一帶一路倡議下的爭議解決：在粵港澳大灣區構建有效的調解體系), CSHK Policy Paper, No. 9.

The published journal article is

Lin, F 2020, ‘Hong Kong’s Role in the Belt and Road Initiative Dispute Resolution: Limits of Law and Power of Politics’, The Chinese Journal of Comparative Law, viewed 8 June 2020, https://doi.org/10.1093/cjcl/cxaa007 Belt and Road Initiative.

68 The Law Society of Hong Kong 2020, Monthly Statistics on the Profession (updated as of 31 May 2020), viewed 2 June 2020, https://www.hklawsoc.org.hk/pub_e/about/ 190

Type of Legal Professions Number of practitioners 1. Practising solicitors 10,433 2. Trainee Solicitors 1,225 3. Student Members 243 4. Foreign Lawyers from 34 jurisdictions 1,667 Barrister 1. Junior Counsel69 1,429 2. Senior Counsel70 104 Arbitrators 1. HKIAC’s Panel & List of arbitrators71 753 2. CIETAC HK Panel of arbitrators72 1,440 3. Panel of Arbitrators of The Law Society of Hong Kong73 28 4. Bar List (Arbitrators) of The Hong Kong Bar Association74 114 5. HKIA & HKIS Joint Panel of Arbitrators75 34 6. International Chamber of Commerce (ICC) 76 2,992 7. The Permanent Court of Arbitration (‘PCA’) 77 332 8. The Chinese Arbitration Association, Taipei (CAA) Panel of 820 Arbitrators78 Mediators

69 Hong Kong Bar Association 2020, Bar List (Junior Counsel), viewed 8 June 2020, https://www.hkba.org/Bar- List/junior-counsel 70 Hong Kong Bar Association 2020, Bar List (Senior Counsel), viewed 8 June 2020, https://www.hkba.org/Bar- List/senior-counsel 71 Hong Kong International Arbitration Centre 2020, Panel & List of Arbitrators, viewed 8 June 2020, http://www.hkiac.org/arbitration/arbitrators/panel-and-list-of-arbitrators 72 CIETAC Hong Kong Panel of Arbitrators 2020, Panel of Arbitrators, viewed 8 June 2020, http://www.cietac.org/index.php?g=User&m=Arbitrator&a=index&l=en&searchENName=&searchType=&sear chENLanguage=&searchENAddress=&searchENSpecSkill= 73 The Law Society of Hong Kong 2020, The Panel of Arbitrators of The Law Society of Hong Kong, viewed 8 June 2020, https://www.hklawsoc.org.hk/pub_e/ars/arbitrator.asp 74 Hong Kong Bar Association 2020, Bar List (Arbitrators), viewed 8 June 2020, https://www.hkba.org/Bar- List/arbitrators 75 HKIS & HKIA Joint Dispute Resolution Committee 2020, HKIA & HKIS Joint Panel of Arbitrators, viewed 8 June 2020, http://www.jdrc.com.hk/JointPanelArbitrator.htm 76International Chamber of Commerce 2020, ICC Arbitral Tribunals, viewed 8 June 2020, https://iccwbo.org/dispute-resolution-services/arbitration/icc-arbitral-tribunals/ 77 Permanent Court of Arbitration 2020, Panels of Arbitrators and Experts, viewed 8 June 2020, https://pca- cpa.org/en/about/panels/ 78 The Chinese Arbitration Association, Taipei (CAA) Panel of Arbitrators 2015, The List of the CAA's Panel of Arbitrators, viewed 23 May 2020, http://www.arbitration.org.tw/ArbitratorRoster.php 191

Type of Legal Professions Number of practitioners 1. Hong Kong Mediation Council (HKMC) (General Panel, Family 1,101 Panel, and Family supervisors) 79 2. Hong Kong Institute of Engineers80 32 3. Hong Kong Mediation Centre (Panel of Hong Kong China Mediation 401 Expert and Panel of Hong Kong China Mediation Expert) 81 4. China Council for the Promotion of International Trade (CCPIT) / 15 China Chamber of International Commerce (CCOIC) Mediation Centre82 5. Joint Mediation Helpline Office, Financial Dispute Resolution Centre / 6. Hong Kong Institute of Arbitrators (HKIAB) 83 124 7. Hong Kong Institute of Surveyors / 8. Mainland-Hong Kong Joint Mediation Centre84 88 9. Hong Kong Mediation Accreditation Association Limited (HKMAAL) 1,882 85

There are 10,433 practising solicitors, 1,225 trainee solicitors, 243 student members as well as 1667 registered foreign lawyers from 34 jurisdictions, according to the Law Society of Hong Kong.86 The average number of admitted solicitors for the past 5 years is about 611, while the growth rate of practising solicitor each year is around 4.72%. The participation of foreign law firms and lawyers in Hong Kong legal sector dates back to 1971. Currently, the majority of law firms in Hong Kong are local firms with 933 firms, whereas foreign law firms including the mainland Chinese law firms are 92. Out of these 933 local firms, about 250 have stated themselves practicing in arbitration.87 There are about 1,500 practising barristers, of which 104 are Senior Counsels. Most arbitrators and mediators practicing in Hong Kong associate with one or more arbitration or mediation institutions based in Hong Kong. For example, there are 753 arbitrators in the HKIAC’s Panel

79 Hong Kong Mediation Council 2020, https://www.hkiac.org/mediation/mediators/hkiac-panel-of-mediators 80Hong Kong Institute of Engineers 2020, HKIE List of Mediators, viewed 8 June 2020, https://hkie.org.hk/en/membership/lom/ 81Hong Kong Mediation Centre 2020, Panel of Mediators, viewed 8 June 2020, http://www.mediationcentre.org.hk/en/mediators/Panel.php 82 China Council for the Promotion of International Trade (CCPIT) / China Chamber of International Commerce (CCOIC) Mediation Centre 2020, Panel of Hong Kong China Mediation Expert, viewed 8 June 2020, http://www.mediationcentre.org.hk/en/mediators/PanelofHKChinaMediationExpert.php 83 Hong Kong Institute of Arbitrators (HKIAB) 2020, Panel of Mediators, viewed 8 June 2020, http://www.hkiarb.org.hk/en/panel_mediators.php 84 Mainland-Hong Kong Joint Mediation Centre 2020, Dispute Resolution Experts, viewed 8 June 2020, http://mhjmc.org/en/Index_Page.php?fmd=6 85Hong Kong Mediation Accreditation Association Limited 2020, Mediator Panel, viewed 8 June 2020, http://www.hkmaal.org.hk/en/gplistRst.php?tit=0&fn=&ln=&rsd=&te=&fa=&em=&aop[]=0&kw= 86 The Law Society of Hong Kong 2020, Monthly Statistics on the Profession (Updated as of 31 May 2020). viewed 17 June 2020, https://www.hklawsoc.org.hk/pub_e/about/#governmanet 87The Law Society of Hong Kong 2020, Find Legal Service. viewed 25 February 2020, https://www.hklawsoc.org.hk/pub_e/about/#governmanet 192

& List of arbitrators, 274 of whom practice in Hong Kong, while there are 1440 arbitrators registered in CIETAC HK, 78 of whom are Hong Kong based. As far as mediation is concerned, a general mediator can be admitted as a family mediator or family supervisor at the same time. In Hong Kong there are over 30 mediation accreditation bodies each adopting its own training and accreditation criteria. There is no legislation which stops the creation of mediation accreditation bodies. The Secretary for Justice's Mediation Task Force, its Accreditation Group and the Founder Members, a broad consensus has been reached to establish a single accreditation body (Hong Kong Mediation Accreditation Association Limited 2013). Since 2012, the HKSAR government has set up the Hong Kong Mediation Accreditation Association Limited (HKMAAL) as the single accreditation body in Hong Kong for formulating accreditation standards, training requirements and disciplinary mechanisms for mediators. At present, accredited mediators practicing in Hong Kong are accredited by different mediation accrediting organisations, local and overseas alike, each adopting its own set of training and accreditation requirements. The number of mediators in the general panel, family panel, and family supervisors of HKIAC is 828, 221 and 52, respectively. In 2019, the total number of mediators accredited by HKMAAL as family mediators and general mediators are 215 and 1667 respectively. There are 186 solicitor-mediators from LSHK and 329 barrister-mediators from HKBA. In order to understand their views on Belt and Road Initiative, we conducted interviews with 39 respondents from the abovementioned professionals, together with government officials and senior managements from professional bodies. Respondents are recruited through snowballing according to the recommendations from legal experts. Specifically speaking, the snowballing operates through reaching similar as well as different types of practitioners or organisations to triangulate the findings. In addition to interview meetings, we also gauged the demand and supply on Hong Kong legal services through engagements in legal sector events and B&R field research observations. We have also arranged tripartite meetings to explore into possible cross- border collaborations. Among our respondents, there are 13 barristers (while 4 obtain arbitrator qualification, 1 obtain both qualifications of arbitrator and mediator), 14 solicitors (while 2 obtain arbitrator qualification and 3 obtain both qualification of arbitrator and mediator) and 14 related respondents (while 5 of them obtain mediator qualification). For more details, please refer to the enclosed interviewees list. Arbitrator Mediator Both None Qualification Qualification Qualification Barrister 13 4 0 1 8 Solicitor 13 2 1 3 7 Others 13 0 4 0 9

The research team has conducted in-depth interviews in three phases to inquire about stakeholders’ views towards the Belt and Road Initiative. The first phase of interviews took place during July 2016 to March 2017, which consists of four interviews with Chinese experts

193 and Central government officials for assessing the central government’s expectation on Hong Kong legal sector under the Belt and Road Initiative. The second phase lasting from April 2017 to December 2018 includes seven interviews with representatives of professional bodies in the local legal sector, including the Department of Justice (DoJ), the Hong Kong Bar Association (HKBA), the Law Society of Hong Kong (LSHK) , the Hong Kong Mediation Centre (HKMC), and the Asian Academy of International Law (AAIL). The third phase from January 2019 to January 2020 includes fourteen interviews with representatives of the pilot institutions of the sector, namely Hong Kong International Arbitration Centre (HKIAC), the China International Economic and Trade Arbitration Commission (CIETAC) and The Hong Kong Bar Association (HKBA), as well as practising or retired solicitors, arbitrators, and mediators. Furthermore, the research team collected responses from other jurisdictions to address the legal participation and role of Hong Kong in Belt and Road Initiative. For instance, the research team has learnt from fieldwork at the Port of Colombo, Sri Lanka, that a Hong Kong-based law firm was providing a different type of legal service other than dispute resolution there. The follow- up interview with their operator’s parent company, the China Merchants Group (CMG), has then allowed the research team to discover part of the reason why B&R countries may not select Hong Kong as the seat in the arbitration clause of their project contracts. These findings, coherent with identified stakeholders, are valuable to the study for answering the role of Hong Kong in the Belt and Road Initiative. Our research questions are focusing on the following 3 sections: • What are the views of Hong Kong legal professions on the Belt and Road Initiative? • Which types of legal practitioners are interested in and have been participating in legal work under Belt and Road Initiative and why? • What are the factors making Hong Kong become a preferred international Arbitration Hub?

3. Research Findings

3.1 High Expectation on Hong Kong legal sector’s role The research team discovered that the Hong Kong legal sector’s role in Belt and Road Initiative as a manifestation of the cooperation between Hong Kong and Mainland China for co- development in a broader framework is commonly found among the mainland respondents. They shared that the central government had high expectation of Hong Kong legal sector regarding the BRI in two dimensions: (1) as facilitator of China’s ‘go global’ initiative, and (2) development of an international dispute resolution centre. Respondents 025 and 155 who are senior officials from central government indicated that Beijing has high expectation of Hong Kong legal sector to cooperate with Chinese enterprises. Respondent 027 who is another senior Central Government official and Respondent 001 who is an academia, specifically stressed that Hong Kong is expected to be China’s ‘go global’ facilitator under the Belt and Road Initiative. They asserted that the role of Hong Kong legal sector in the Belt and Road Initiative, as expected by the central government, could assist

194

Chinese enterprises to alleviate the legal and investment risk in the Belt and Road Initiative projects and countries. And ultimately the comprehensive strengths of China could be enhanced with the help of Hong Kong legal sector in the Belt and Road Initiative. Respondents 001 & 023 also contended that the central government expected Hong Kong legal sector to develop the international arbitration services to serve the BRI. They cited the 13-5 Plan (Box 1) and the initiation by President Xi that Hong Kong should develop as an international legal and dispute resolution services centre in the Asia-Pacific Region due to their understanding of Belt and Road Initiative as a national strategy. Notably, a central government official (respondent 155) suggests that corporations are willing to seat their arbitration case in Hong Kong, since they perceived Hong Kong legal services as attractive and high quality for foreign investors. Given the high compatibility of the common law system, high quality of legal services and high language competence of the talents, the development of international dispute resolution centre in Hong Kong was considered highly feasible.

Box 1 The 13th Five-year Social and Economic Development Plan (the 13th Plan) In the 13th Plan of China, one of the most important planning policy statement in China, Chapter 51 is devoted to the Belt and Road Initiative while Chapter 54 is devoted to Hong Kong and Macau special administrative regions. With regard to the 21st Century Maritime Silk Road, on which Hong Kong is located, the 13th Plan promotes the construction of strategic points thereunder and promote mutual connectivity in five aspects with those countries along the maritime silk road. As far as Hong Kong is concerned, the 13th Plan states that support will be given to Hong Kong to strengthen its traditional advantages and to develop new advantages. Chapter 54 states that Hong Kong will be supported to consolidate and enhance its status as international financial, transportation and trade centres. In particular, it mentions that it supports Hong Kong to establish itself as an international legal and dispute resolution service centre in Asia Pacific region. The 13th Plan also supports Hong Kong to participate in the Belt and Road Initiative, encourages enterprises in Mainland China and Hong Kong to join hands in going global, and supports deepening collaboration between Hong Kong and Mainland China. It’s clear from what’s written in the 13th Plan that the Chinese Central Government has decided as a formal policy to support Hong Kong to develop itself as an international dispute resolution and legal service hub in Asia Pacific region. Source: Lin, F 2020.

3.2 Optimism for Hong Kong legal sector’s potential role Similar to the mainland respondents, when asked of what role Hong Kong’s legal sector can play in the BRI, there is a caveat of optimism amongst most respondents in Hong Kong. There is widespread faith in the competitiveness of the Hong Kong legal services, in four dimensions in particular (1) the common law system, (2) the strong connection with China and the world, (3) numerous legal talents with high competence, and (4) high competence of the current arbitration centres. Given these strengths, a general theme many have converged is that Hong Kong can serve as the ‘middle person’ for China under the Belt and Road Initiative (respondent

195

127, 129, 130). Hong Kong law firms can bridge the gap between Chinese firms and other jurisdictions in terms of law and business practices, and thereby facilitate better implementation of the Belt and Road Initiative and the ‘go-global’ initiative of Mainland enterprises (respondent 109, 110, 111, 259). Respondent 270 from a leading international law firm with Belt and Road Initiative cases experience, for example, has expressed her faith in Hong Kong as an aggregate point to help foreign investors to enter the market and Chinese enterprises to ‘go global’. Professionals from smaller firms believe that Hong Kong practitioners would benefit from enhanced collaborations with mainland counterparts and ongoing reform initiatives in the Mainland. For example, Hong Kong professionals may join and benefit from the new arbitration platforms now being set up in Qianhai, Shenzhen and Huizhou under the Greater Bay Area reforms (respondent 257). Those optimistic views are based on a simple premise, that the Belt and Road Initiative will eventually generate new demand for legal services and dispute resolution services which Hong Kong will be able to supply, a point mentioned by many respondents we have talked to (respondent 107, 108, 109, 110, 111, 242, 243, 257, 259, 264, 270, 289). Given the many challenges in the BRI projects, disputes between governments or enterprises are inevitable. There will be a demand for legal documents drafting and dispute resolution related personnel, as well as for new legal services such as investment arbitration, maritime arbitration, and disputes over intellectual property. Some of the niche areas for the Hong Kong legal sector, in particular, are international sales or trade, dispute resolution (including arbitration and mediation), transnational-based agreements, debts restructuring programme, and project contracts (respondent 106). On why Hong Kong will be able to catch the demand, a senior practitioner from a transnational law firm with BRI case experience commented that ‘most Chinese law firms do not, yet, have the capability to do the outbound work. They could advise on the local (Chinese) law but generally are not capable of the international style project advisory role as required in complex BRI projects…’ (respondent 367).

3.3 The participation of Hong Kong legal practitioners Despite the up-beat assessment of Hong Kong’s potential role as outlined above, we observed that actual participation in BRI-related legal work of the Hong Kong legal sector, beyond promotion and exploratory research, has been rather limited. In other words, notwithstanding the strong potential prospect of Belt and Road Initiative for the legal sector and an interest in exploring opportunities for participation, most legal professionals, especially for those who had not been accredited as arbitrators or mediators, have actually done little actual work in relation to BRI projects. Among the 26 legal sector respondents we spoke to at length, only seven declared having experience in Belt and Road Initiative related cases in their practice. One possible explanation of this gap in actual participation is that amongst the core players of the legal sector (barristers & solicitors) there is actually no urgent demand to explore more business opportunities from the Belt and Road Initiative, or they have not got opportunities to participate in the Belt and Road Initiative related cases. This can be, we learn from our discussions, due to the client-led nature of legal services (respondent 259, 264, 289) and

196 insufficiency in clientele networks in, and knowledge of, the B&R destinations (respondent 243, 257, 278, 414). Many Chinese enterprises, with headquarters mostly in Beijing, rarely employ services of Hong Kong legal practitioners. Instead they would approach international law firms with mainland branches for international law support (respondent 109, 110, 111).

Among the seven respondents who have had experience in Belt and Road Initiative related cases in legal practice, four are also accredited as arbitrators or mediators. This indicates the higher propensity to participate for mediators and arbitrators since these dispute resolution methods are more favourable for disputed parties in the context of Belt and Road Initiative. Without these accreditations, solicitors or barristers could only participate in the Belt and Road Initiative through litigation. Nevertheless, litigation is less preferred in the context of Belt and Road Initiative dispute resolution given the protracted time normally required for litigation procedures, and issues in enforceability (respondent 270). The disputed parties also have to face the risk of confidentiality to disclose important business information during litigation process, as cases will be heard in public. Therefore, we believe that the role of arbitrators and mediators provides higher accessibility for the practitioners to participate in dispute resolution services under the Belt and Road Initiative. An industry leader and senior professional (respondent 414) agreed that the BRI- related legal work would go mostly to the solicitor sector due to the essential differences between the practices of barristers and solicitors. Solicitors will be needed for work in legal document drafting, which can be abundant and complex in cross-national BRI projects. On the other hand, barristers usually get involved only during court hearing stages at a rather advanced phase of dispute resolution. And as the legal professions have varied streams of services, those barristers handling criminal proceedings could hardly participate in Belt and Road Initiative comparing with those handling civil proceedings or commercial cases (respondent 243, 414). Based on the findings, the research team has formulated a number of proposals intended to address some of the identified issues and gaps, which are previously published as policy papers and shared with the Hong Kong and Mainland policy circles. The major contents are incorporated in the following sections 4-5.

4. Policy recommendation 1: Strengthening Hong Kong’s Position as an Arbitration Hub in the Belt and Road Initiative88

Hong Kong has a long history of providing arbitration services dated back to 1844.89 Since

88 Holloway, D, Lin F, Li, LC, Zheng XH, Kwok, MT 2018, ‘Strengthening Hong Kong’s Position as an Arbitration Hub in the Belt and Road Initiative’ (強化香港作為「一帶一路」倡議中國際爭議解決樞紐的地位), CSHK Policy Paper, No. 8. 89 Two years into the colonial period, an ordinance was enacted at the newly instituted Legislative Council (LegCo) to mandate the governor to refer civil disputes to arbitration but disallowed by the Colonial Office in 1844. A decade later the Civil Administration of Justice (Amendment) Ordinance 1855 was enacted to grant such power to the court. The modern arbitral regime in Hong Kong began with the Arbitration Ordinance 1963 197

Hong Kong’s return to Chinese sovereignty in 1997, the legal infrastructure in Hong Kong keeps evolving to support arbitration services.90 In order to fully participate in Belt and Road Initiative, and to leverage Hong Kong’s edge, the Government stepped up its efforts.91 There is currently a vibrant, diversified group of legal professionals specializing in international arbitration services in Hong Kong, with 284 law firms self-claiming to be practising arbitration as of March 2018. Amongst these about 50 are international law firms headquartered in other countries, and 15 of them are firms based in Mainland China with offices in Hong Kong (Figure 1). Within the firms there is a mixture of locally qualified, foreign qualified and dual qualified lawyers. However, it is desirable to see more representation of firms or legal personnel from countries along the B&R.92

Figure 1. Arbitration-practicing Law Firms in Hong Kong

that reflected the English Arbitration Act 1950. Amendments to this ordinance was carried out in 1975 to incorporate the New York Convention on the Recognition and Enforcement of Foreign Arbitration Awards. In 1985, the Hong Kong International Arbitration Centre (HKIAC) was established to promote and manage the use of arbitration. 90 In June 2011, a new Arbitration Ordinance came into effect to unify the legislative regimes for domestic and international arbitrations on the basis of the revised Model Law. An Advisory Committee on Promotion of Arbitration was set up in 2014 to advise the Department of Justice (DoJ) in promoting arbitration in Hong Kong. In June 2017, the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance and the Arbitration (Amendment) Ordinance were gazetted. The former provides a framework for third-party funding for arbitration, while the latter clarifies that disputes over intellectual property rights are subject to arbitration. 91 For more reference, please see Lin, F 2020, ‘Hong Kong’s Role in the Belt and Road Initiative Dispute Resolution: Limits of Law and Power of Politics’, The Chinese Journal of Comparative Law, viewed 8 June 2020, https://doi.org/10.1093/cjcl/cxaa007 92 Arbitral institutions from China and around the world are increasing their activity in Hong Kong. In November 2008, the International Court of Arbitration of the International Chamber of Commerce (ICC) from Paris established a secretariat branch in Hong Kong. In September 2012, the China International Economic and Trade Arbitration Commission (CIETAC) set up its Hong Kong Arbitration Centre, which is also its first branch outside Mainland China. In January 2015, the Permanent Court of Arbitration (PCA) from The Hague signed a memorandum of administrative arrangements with Hong Kong to allow for ad hoc dispute resolution proceedings administered by it to be conducted in Hong Kong. In October 2017, the Chinese Arbitration Association (CAA) from Taiwan announced that it was planning to establish an international branch in Hong Kong and a preparatory office was set up to provide related services.

198

15 27

50 1 219 3

Local China U.K. U.S. Australia Multi-headquarter

Source: Holloway, D, Lin F, Li, LC, Zheng XH, Kwok, MT 2018.

Many advantages of Hong Kong as an international arbitration centre remain effective in the context of B&R Initiative: • The jurisdiction has been a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitration Awards and for decades has adopted almost wholesale the UNCITRAL Model Law on International Commercial Arbitration, which are regarded as the international standard for legislation in this field. Another notable feature of Hong Kong Law is the relative ease with which arbitral awards can be enforced between Hong Kong, Macao and Mainland China. • Our local legal market is also open to international competition. A large number of foreign experts is able to continue international legal practice from a base in Hong Kong and it is relatively easy for them to obtain additional local licenses. • Most non-Chinese international arbitral institutions can administer cases and issue awards freely in Hong Kong but not in Mainland China, yet it is expected that they may have a possibility of further growth should the Chinese authority permit the enforcement of their awards. Therefore, these international institutions may be interested in increasing their activities in Hong Kong as a precursor to licensing of their activities in Mainland China in the future.

Some obvious challenges remain if Hong Kong is to strengthen its position as an arbitration hub under the B&R Initiative: • Given the availability of a pool of expert arbitrators comprising local and internationally qualified professionals, most international law firms currently in Hong Kong are from the

199

United Kingdom, the United States and Australia. Hardly any of them are from the less developed B&R countries. Among the several institutions’ panel list of arbitrators, only a limited number are from the B&R countries. • There is also indication that Hong Kong is losing some of its popularity as a provider of international arbitration services. The HKIAC, whilst still one of the most successful and popular arbitration institutions in the world, was actually hearing fewer cases in the past few years (Figure 2). Amongst arbitration cases submitted to the ICC Court, Singapore has consistently outranked Hong Kong since 2004 as a preferred seat by the relevant parties, and for most years as a preferred seat by the Court (Table 2). The latest International Arbitration Survey released by Queen Mary University of London in May 2018 has even replaced Hong Kong with Singapore as the most preferred seat in Asia.

Figure 2. HKIAC Arbitration Cases

700

600

500

400

300

200

100

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Holloway, D, Lin F, Li, LC, Zheng XH, Kwok, MT 2018.

Table 2. ICC Court Arbitration Seat Frequency Selected by Parties Fixed by Court Year Hong Kong Singapore Hong Kong Singapore 2004 3 4 0 6 2005 3 12 1 2 2006 7 10 1 1 2007 3 13 2 2 2008 10 29 1 1

200

2009 7 30 1 4 2010 11 23 3 1 2011 4 22 4 2 2012 10 31 2 5 2013 14 32 0 1 2014 16 23 0 1 2015 8 35 2 0 2016 8 22 0 4 Source: Holloway, D, Lin F, Li, LC, Zheng XH, Kwok, MT 2018.

Given that most potential disputes relating to the Belt and Road Initiative will come from the less developed countries along the B&R, it is desirable to increase the presence of law firms from those countries in Hong Kong, which could be in the form of a representative office, or joint office with an existing firm already based in Hong Kong, in order to enhance the legal services support to business transactions with the B&R countries. Policy incentives, e.g. office space in an expanded legal services centre, communal facilities, and tax benefits, may be considered to provide the necessary impetus to facilitate the early stage of these processes. Universities in Hong Kong can also play a part by expanding their programmes in arbitration to students from the B&R countries, assisted if possible by government scholarships. Meanwhile, currently nationals from Mainland China and overseas need to apply for an employment visa in order to participate in arbitration proceedings in Hong Kong. We recommend the government to simplify access and exempt the requirement for an employment visa to boost Hong Kong’s competitiveness as an international arbitration hub. This requirement has been removed in Singapore since a decade ago in 2008 per the enactment of the Employment of Foreign Manpower (Work Pass Exemptions – Specified Activities) Notification, subject to the arbitrator’s fulfilment of several conditions. We also see a need to enhance the training and professional development programmes for the local talent pool. Not all of our professionals in Hong Kong are familiar with the cultures, languages and legal systems in the B&R countries, but these are essential knowledge if they are to provide services for clients from those countries. For instance, there should be more components about Islamic laws in the training programmes at local law schools and more courses on foreign languages for continuing education. Academic conferences relevant to B&R and exchanges with the B&R countries should be supported by the universities and government as well. Moreover, whilst Hong Kong should be an appropriate venue for resolving B&R disputes, we do not seem to be promoting ourselves well enough to the mainland community. The Chinese government has recently decided to establish international commercial courts based in Beijing, Xi’an and Shenzhen with the intention of offering support for the development of B&R disputes. There are inevitably difficulties in establishing such courts, such as whether they may conduct proceedings in foreign languages, adopt internationalized rules

201 of procedure and involve non local judges. It is submitted that many of these problems are mitigated in the Hong Kong court system, which already operates bilingually and with the involvement of a number of distinguished foreign judges. Hong Kong should do more to promote its position to the Central Government as an ideal venue for the resolution of B&R disputes. One modest proposal might be the creation of a specialized ‘commercial’ division of the Court of First Instance (CFI) which may initially entail no more than the ‘designation’ of particular judges to hear such disputes at a particular time. Commercial applications, for example, may be heard on Friday morning before the commercial judge, whilst preliminary applications in commercial cases may be heard by the commercial judge rather than a Master in chambers. Hong Kong and Mainland China also need to have a better communication in applying new technologies to assist dispute resolution. The Hong Kong government and legal sector are building an e-Belt and Road Arbitration and Mediation (eBRAM) online dispute resolution platform, while the Supreme People’s Court of China has also been working on the National Judicial Adjudication Justice Information System, or ‘Tian Ping’ Project. Both parties should have taken this opportunity to share information and technology in order to develop an online dispute resolution mechanism for the B&R dispute. We recommend that those in charge of the development of eBRAM should take the initiative to contact Chinese authorities, so that the platform can be integrated with the ‘Tian Ping’ Project, thus enhancing its attractiveness to Chinese investors. As most potential disputes relating to the Belt and Road Initiative will involve Chinese investors and foreign state parties, it is also necessary for our government and arbitration professionals to convince them to choose Hong Kong as their site for dispute resolution. Local arbitration professionals will improve their competitiveness through strengthening their client-specific knowledge, e.g. the evolving mixed-ownership reforms in Chinese state- owned enterprises. In addition, we should invest more to raise Hong Kong’s visibility and sustain our involvement in major global arbitration events. For example, this year’s International Congress and Convention Association (ICCA) Congress held in Sydney has successfully promoted Australia as an arbitration seat to the international arbitration community. The community in Hong Kong should be more active in bidding for hosting similar events, and the government should consider donating venues for free to them as well. Last but not least, Hong Kong should also take better advantage of the international events currently hosted in Hong Kong. Improved coordination amongst various stakeholders within Hong Kong, e.g. the universities, professionals, government and judiciary, and better communication will help build continued improvement.

202

5. Policy recommendation 2: Constructing an Effective Mediation Regime in the Guangdong-Hong Kong-Macau Bay Area93 Mediation offers flexible dispute resolution options that take into account the interests of parties. It is generally accepted that mediation is a process that possesses certain core attributes: ‘Mediation is a procedure based on the voluntary participation of the parties, in which an intermediary (or multiple intermediaries) with no adjudicatory powers systematically facilitate(s) communication between the parties with the aim of enabling the parties themselves to take responsibility for resolving their disputes.’(Hopt & Steffek 2013, p11) Mediations in Hong Kong are generally carried out by parties appointing an accredited mediator (an impartial third party) on the panel of the accrediting institution (Hong Kong Mediation Accreditation Association Limited (HKMAAL)). Mediation practiced by HKMAAL accredited mediators is facilitative in nature. The process neatly fits into the definition of ‘modern mediation’. It is an ‘underlying objective’ under Hong Kong’s civil procedure to facilitate the settlement of disputes (Hong Kong Judiciary 2008). The court, as part of its active case management, has the duty to encourage parties to settle using mediatory procedures. It also has the duty to help parties to settle their case. The parties and their legal representatives have the duty of assisting the Court to discharge the duty in question. Practice Direction 31 (PD 31) was introduced to help the court in discharging this duty (Hong Kong Judiciary 2014). Under PD 31, there will be adverse costs consequences if it can be established by admissible materials that there was any unreasonable failure of a party to engage in mediation. The court will not make any adverse costs order against a party on the ground of unreasonable failure to engage in mediation where the party has engaged in mediation to the minimum level of participation agreed to by the parties or as directed by the Court prior to the mediation, or where a party has a reasonable explanation for not engaging in mediation. There are different types of mediation in China. Under the Civil Procedure Law, court- facilitated mediation must be conducted on a voluntary basis. However, the principle of voluntariness is not always followed in practice due to various reasons (Chan & Nijhoff 2017). Courts may refer a case to an ‘outside organization’ (usually a people’s mediation committee) for mediation. A settlement reached under such mediation is enforceable when it is confirmed by the court under its judicial confirmation proceedings. Mediation by the courts or by people’s mediation committees is evaluative in nature. There are institutions in China established for resolving commercial disputes by private mediation charging an administrative fee. The most influential institution is the China Council for the Promotion of International Trade/China Chamber of International Commerce (CCPIT/CCOIC), which operates a mediation centre with national coverage (CCPIT/CCOIC Mediation Centre). Established in 1987, the Mediation Centre maintains a nationwide network of over 40 sub-council (local) mediation centres in provinces,

93 Section 5 draws upon: Chan, CH & Lin, F 2018, ‘Dispute Resolution under the Belt and Road Initiative: Constructing an Effective Mediation Regime in the Guangdong- Hong Kong-Macau Bay Area’ (一帶一路倡議下的爭議解決：在粵港澳大灣區構建有效的調解體系), CSHK Policy Paper, No. 9.

203 municipalities and autonomous regions. CCPIT/CCOIC has an enormous presence in China (CCPIT/CCOIC Mediation Centre 2018). The mediation is facilitative in nature. The GMH Bay Area (or GBA) is one of the fastest growing economic regions in the world. Macau plays the role of the entertainment (gaming), conference and tourism hub. Hong Kong remains a steadfast and robust international financial centre and service hub, still ranking high in terms of the level of rule of law. Guangdong, with star cities like Shenzhen, is home to some of the fastest growing high-tech and internet enterprises in China. This remarkable growth is characterized by rapidly expanding inter-regional commerce. Parties need inexpensive and effective dispute resolution options for complex cross-border disputes. As a result of this trend, a number of pilot programmes have been introduced to better calibrate the existing mediation systems of these regions to the mounting commercial needs. To date, there is only one cross-border mediation centre that deals with disputes connected to both Hong Kong and Mainland China. The Mainland-Hong Kong Joint Mediation Centre (MHJMC) was set up in 2015 by the CCPIT/CCOIC Mediation Centre and the Hong Kong Mediation Centre. Among its various objectives, the MHJMC aims to provide a platform to settle cross-border commercial disputes between Mainland Chinese, Hong Kong and foreign enterprises. It also aims to provide a unified accreditation system for (and assist in the training of) cross-border mediators. Individuals who have taken the Certificate Course on Cross-Border Mediator Training and passed the relevant accreditation assessment may apply to become an International Accredited Professional Mediator of MHJMC. The certificate course targets Hong Kong accredited mediators who are looking to mediate cross-border commercial disputes. In the course, participants learn the mediation model for cross-border commercial disputes and get familiarized with Mainland China’s dispute resolution system. Parties who settle their disputes under the Cross-Border Dispute Resolution Mechanism will be able to convert their settlement agreement into an arbitral award. The MHJMC recommends the following Mediation Clause be inserted in any contract: ‘Any dispute arising from or in connection with this contract shall be submitted to Mainland-Hong Kong Joint Mediation Centre for mediation and arbitration which shall be conducted in accordance with the Centre’s Mediation Rules in effect at the time of mediation.’ Mediation at MHJMC is facilitative in nature.94 This has proven to be much more effective that the evaluative approach that is commonly used in conciliation procedures practiced in Mainland China. The Cross-Border Dispute Resolution Mechanism under the Joint Mediation Centre is cost effective, as shown in Table 3.

94 Article 8 of the MHJMC, ‘The mediator shall adopt the Hong Kong International Mediation model and communicate with parties through meetings, written or oral correspondence(s) which he/she shall think fit. The mediator can conduct mediation in manners he/she considers appropriate. If the mediator deems it necessary, and agreed by the parties, professionals of the related industry can be invited to assist and participate in the mediation, which the costs shall be borne by all parties.’

204

Table 3: Budget Reference of MHJMC International Dispute Resolution Mechanism and Arbitration95 Budget for MHJMC Amount saved for International Dispute Budget for using Amount in Dispute Resolution Arbitration (b) International Mechanism (a) Dispute Resolution Lower Lower Upper Lower Upper Mechanism Upper Limit Limit Limit Limit Limit Limit (a) vs (b) / 100,000 39,400 52,200 69,000 136,500 - 54% 100,000 500,000 40,902 69,100 136,500 204,000 - 66% 500,001 1,000,000 51,402 88,092 204,000 335,400 - 72% 1,000,001 5,000,000 67,196 150,420 221,400 877,400 - 78% 5,000,001 10,000,000 140,942 320,620 877,400 1,241,400 - 76% 10,000,001 50,000,000 212,342 662,220 789,900 2,096,400 - 67% 50,000,001 100,000,000 501,542 905,540 1,370,400 2,595,800 - 63% 100,000,001 1,000,000,000 698,782 2,400,142 1,683,800 5,997,800 - 58%

While existing mechanisms help integrate the various mediation systems in the GMH Bay Area, more can be done to improve uniformity and efficiency in the mediation of cross-border disputes.

• Re-calibrating the pre-litigation mediation procedure for cross-border disputes in Chinese courts. The pre-litigation mediation procedure for cross-border disputes (e.g. in Qianhai Court) looks promising on paper. But in reality, ‘overseas’ mediators are seldom called to take on cases.96 It appears that courts in general are still reluctant to refer a case completely to an ‘overseas’ individual without any supervision from the court. This is contrasted with the Hong Kong lay assessor programme in these courts where the Hong Kong lay assessor is only one of the three adjudicators of a case. Going forward, there has to be a breakthrough in this mentality. • Extending the pre-litigation mediation procedure for all cross-border disputes in Guangdong. Currently, the pre-litigation mediation procedure for cross-border disputes (in which a specialist panel of mediators is maintained) is only available at courts in the three Free-Trade Zones. This procedure, if implemented properly, has the advantage of matching the parties with mediators of similar background. For instance, many of the Hong Kong parties prefer Hong Kong mediators, even though the dispute resolution forum is in the mainland. It is therefore advisable to extend this procedure to all courts in Guangdong with steady and substantial cross-border caseloads.

95 Mainland - Hong Kong Joint Mediation Centre 2017, Cross-border Dispute Resolution Service, viewed 3 April 2018, https://mhjmc.org/en/Page_Format_6.php?fmd=28 96 Based on an interview with a Hong Kong mediator at the one of the courts in the FTZs in Guangdong (2 April 2018). 205

• Extending MHJMC to cover Macau and/or the Establishment of a GMH Bay Area Mediation Centre/Association. Currently, the MHJMC encompasses only the mainland and Hong Kong. It is suggested that the MHJMC be extended to cover Macau (and even Taiwan). In addition, other mediation institutions in the mainland and Hong Kong could also participate in this mega-cross-border mediation centre. With extended coverage and the participation of other mediation organizations, the future ‘GMH Bay Area Mediation Centre’ could take on more complex cases involving multiple jurisdictions. • Unified Protocols in the Future GMH Bay Area Mediation Centre. Participating mediation institutions of the future GMH Bay Area Mediation Centre should agree on a set of joint protocols in the appointment of mediators. Obviously, different panels of mediators will have to be maintained given the variety of cross-border cases that the centre is likely to take on in the future. The mediator accreditation regime for cross border disputes should be jointly administered by the participating mediation institutions. Training courses should include Chinese law elements as most of the time one of the parties to the dispute would be a mainland party. Based on the existing mediation rules of the MHJMC, the participating mediation institutions should devise a set of Model Mediation Rules tailored to the needs of cross-border cases in this part of the world. • Steering Committee for Mediation in the GMH Bay Area. As an immediate step, a steering committee for mediation should be set up to review the current system and propose changes. The committee should include members of the judiciary and the legal profession in each jurisdiction, as well as representatives of the various mediation institutions. ADR experts may sit as advisors.

The Belt and Road Initiative is an unprecedented attempt of economic integration, encompassing more than 68 countries. The economic activities generated by the Belt and Road Initiative are likely to give rise to disputes that cover three main areas: (1) investment disputes between private investors and the states; (2) investment disputes among states; and (3) the usual commercial and investment disputes between private parties (Wang et al. 2017, p.348). The cross-jurisdictional nature of these disputes (coupled with their infrastructure/heavy industry focus) gives parties limited dispute resolution options as the national court is generally not the ideal forum. Mediation demonstrates its strength as it is not based on any particular set of national rules (Wang et al. 2017, p.346). So long as parties agree on a basic mediation framework, the dispute resolution process can be as flexible and inclusive as parties want it to be. This fits particularly well with Belt and Road Initiative disputes, which usually involve many different states and private parties. The future GMH Bay Area Mediation Centre should adopt a common set of Belt and Road Initiative mediation rules. The Belt and Road Initiative mediation system should that take into account: (a) the special nature of Belt and Road Initiative disputes (as discussed above); (b) the fact that many of these disputes relate to foreign states, hence the need to ensure that the mechanism is internationally recognized; (c) the cultural differences of the parties (i.e. the need to train mediators on even the most subtle etiquette); and (d) the need for finality – i.e. the system must ensure the settlement agreement is converted into a arbitral award in a timely and 206 cost-effective manner. Given China’s leadership position in Belt and Road Initiative, it is recommended that a ‘Belt and Road Initiative Mediation Association’ be established (and seated in China). The association should actively invite relevant mediation and arbitration centres in other Belt and Road Initiative countries to join. The association can play the role of unifying ADR norms in Belt and Road Initiative disputes and promoting policies that are conducive to Belt and Road Initiative disputes resolution. Hong Kong is in a unique position to promote mediation in the GMH Bay Area. There are a number of reasons for this:

• First, as a leading international dispute resolution centre, Hong Kong has rich experience with mediation. With PD 31 (introduced since 2010), most parties litigating in Hong Kong would attempt mediation to avoid adverse costs orders. As such, mediation is the norm in dispute resolution in Hong Kong. In terms of language capabilities, Hong Kong mediators are accustomed to conducting mediation in English, Cantonese and Mandarin. • Second, Hong Kong has a unified mediators accreditation system maintained by the Hong Kong Mediation Accreditation Association Limited (HKMAAL). To become a mediator, a candidate must take an HKMAAL approved training course and pass the HKMAAL assessment (to become a General Mediator, the candidate needs to mediate at least two HKMAAL simulated general (non-family) mediation cases in the assessment), according to the HKMAAL (2013a). With a unified accreditation system, Hong Kong is able to maintain standards and best practices in mediation. Such consistency in standards is very important for the integration of the mediation infrastructure in the GMH Bay Area. • Third, as an international port, many of the commercial and investment disputes in Hong Kong have cross-border elements. Hong Kong mediators are able to navigate the multifaceted and complex nature of cross-border disputes. As one expects inter-regional commerce and investment in the GMH Bay Area to thrive even further in the future, Hong Kong, with its rich experience in cross-border dispute resolution, provides a unique perspective in the development of mediation in the GMH Bay Area. As an international financial centre, Hong Kong is a renowned financial dispute resolution hub. The Financial Dispute Resolution Centre (FDRC), for instance, provides independent mediation and arbitration services to financial institutions and the investing public. • Fourth, Hong Kong already has an established cooperative link with the mainland in mediation through the MHJMC and connections with the three courts in the Guangdong FTZs. Other links include exchanges and cooperation between Hong Kong and mainland mediation and arbitration institutions. For Hong Kong, it is only a matter of developing these links further. • Finally, the common law tradition and the rule of law in Hong Kong give Hong Kong a comparative advantage in promoting mediation in the GMH Bay Area. Mediation cannot exist in the vacuum. Statutory rules and case law are extremely important for mediation as they set the norms on which mediations are conducted. The traditional legal institutions of Hong Kong have a lot to offer.

207

• There is no doubt that Hong Kong will spearhead the upcoming integration of mediation systems in the GMH Bay Area. But Hong Kong must address some existing hurdles as well. One of the hurdles is the relatively lag in the use of innovative technology in mediation in Hong Kong. This issue has been addressed by the Department of Justice of the HKSAR through the introduction of eBRAM.hk, which is an online ADR platform (both arbitration and mediation) for Belt and Road Initiative projects disputes. Documents are encrypted and uploaded onto the eBRAM.hk platform with strict access control. The platform provides secure videoconferencing service to allow parties to communicate. Measures are taken to ensure that the technical infrastructure of eBRAM.hk (which is located in Hong Kong) is safe from cyber-attack and that all data are encrypted and stored safely in its data centre, mentioned by Ms Teresa Cheng Yeuk-wah (2018). Going forward, Hong Kong should attract parties from different jurisdictions (especially Mainland China) to use the eBRAM.hk platform and perhaps extend the platform to cover general commercial (non-Belt and Road Initiative) cases.

6. Conclusion Hong Kong’s legal infrastructure for arbitration has been well developed and is suited for any kind of arbitration cases including those under the Belt and Road Initiative. There is unambiguous policy support at both national and Hong Kong regional levels. However, uncertainty exists for such policy as national support for Hong Kong to become an international dispute resolution hub to be converted into an enforceable piece of legislation. In addition to promulgation of the policy, the intention and willingness of the Mainland to implement the policy are very important. Continuous confrontation between Hong Kong and Mainland China and the two big recent political movements (‘Occupy Central Movement’ and ‘Anti-extradition Movement’) will no doubt discourage the Mainland to proactively implement those policies. Hence, in addition to the specific policies mentioned above, what Hong Kong also needs to do is to resolve its political instability and improve its relationship with Mainland China. Those are political and public relations issues. Specifically speaking, the HKSAR Government should, by using whatever means possible, engage those people who distrust the Chinese Central Government in a dialogue with itself and the Chinese Central Government so as to enhance mutual trust between Hong Kong and Mainland China. One possible way to achieve this is to persuade the Central Government to show its goodwill first by taking concrete actions to support Hong Kong to become a dispute resolution hub under the Belt and Road Initiative. Given that most Belt and Road Initiative projects have been undertaken by mainland Chinese companies, especially its state-owned enterprises, they will choose Hong Kong as their forum for dispute resolution if the Central Government gives such an indication. One essential reason that the policy to make Hong Kong an international hub for dispute resolution has not materialized is that the HKSAR Government has failed to convince Chinese Central Government to take concrete actions to make Hong Kong an internationally leading dispute resolution hub under the Belt and Road Initiative. In contrast, the decision to relist Alibaba in

208

Hong Kong shows Chinese Central Government’s continuous support for Hong Kong to remain a leading international financial centre.97 While Hong Kong should continue to improve its legal infrastructure relating to cross-border dispute resolution, it should invest more in political persuasion in Mainland China and B&R countries and make serious efforts to enhance mutual trust between Hong Kong and Mainland China in order to remove concerns of business community caused by political instability in Hong Kong. Political skills in convincing both Chinese Central Government and state-owned enterprises to choose Hong Kong as the forum for resolving disputes under the Belt and Road Initiative is more important and determines whether Hong Kong can get a fair share of dispute resolution business arising from the Belt and Road Initiative. In addition, the HKSAR Government and the relevant stakeholders in Hong Kong should also change its mentality from thinking only about Hong Kong’s interests to putting itself in the shoes of the GHM Greater Bay Area and coming up with a collaborative strategy to develop dispute resolution mechanisms in the GHM Greater Bay Area together. Only in so doing will Hong Kong be able to get its share of dispute resolution business from projects under the Belt and Road Initiative.

97 The relisting of Alibaba happened very quickly from the start of discussion to actual relisting. That would not be possible with the endorsement of Chinese Central Government. 209

Enclosure: Interviewees List

Arbitrato Mediato Code Date Background of Interviewee Barrister Solicitor r r Mainland Professor in 1. 023 07/16 No No No No Diplomacy Mainland Senior Central 2. 027 07/16 No No No No Government Official Mainland Professor in 3. 001 01/17 Institutional Reform and No No No No Development Mainland Senior Central 4. 025 03/17 No No No No Government Official Senior Counsel and Senior, 5. 029 04/17 management of a barrister Yes No No No association of Hong Kong Senior Counsel, founder of a professional body related to 6. 087 06/17 Yes No Yes No international law training to the legal practitioners Senior Barrister, management of a professional body related to 7. 225 06/17 Yes No Yes No international law training to the legal practitioners Senior Solicitor, former senior 8. 106 08/17 HKSAR government official in a Yes No No No legal department 08/17 Senior management of non-profit 9. 108 No No No Yes 05/19 mediation institution Management of non-profit 10. 107 08/17 No No No Yes mediation institution A solicitor of a legal department 11. 109 08/17 No Yes No No of HKSAR government A senior counsel of a legal 12. 110 08/17 Yes No No No department of HKSAR Officer of a legal department of 13. 111 08/17 HKSAR in charge of promoting No No No No mediation Senior solicitor, former senior member of a Belt and Road 10/17 14. 129 Initiative committee of a No Yes No No 07/19 solicitor organisation of Hong Kong

210

Arbitrato Mediato Code Date Background of Interviewee Barrister Solicitor r r A former council member of a 130 15. 10/17 solicitor organisation of Hong Yes No No No

Kong Management of a solicitor 16. 127 10/17 No Yes No No organisation of Hong Kong Mainland central government 17. 155 11/17 No No No No official A former draftsman of a legal 18. 242 12/17 department of HKSAR No Yes No No government Mainland compliance consultant 19. 206 05/18 No No No No of a state-owned enterprise Senior management of a barrister 20. 243 01/19 Yes No No No association in Hong Kong Senior solicitor in a medium scale law firm with 2 offices in 21. 257 02/19 No Yes No Yes Hong Kong, 2 representative office at Mainland China Junior solicitor specialising in 22. 259 02/19 IPO related legal compliance No Yes No No work in a PRC law firm Senior barrister of a first-tier law 23. 264 03/19 firm, Former senior management Yes No Yes Yes of an arbitration Centre Senior solicitor of a leading international law firm, Former 24. 270 03/19 No Yes Yes Yes senior management of an arbitration Centre Senior management of an 25. 275 03/19 arbitration centre originated from No Yes Yes Yes China Management of an arbitration 26. 276 03/19 No No No No centre originated from China Junior solicitor in a Hong Kong 27. 278 03/19 No Yes No No based law firm Mainland senior management of 28. 292 05/19 No No No No a state-owned enterprise Junior solicitor of a local based 29. 289 05/19 No Yes Yes Yes law firm Senior counsel, management of a 30. 030 05/19 Yes No Yes No professional body related to

211

Arbitrato Mediato Code Date Background of Interviewee Barrister Solicitor r r international law training to the legal practitioners Senior management of a non- 31. 294 05/19 No No No Yes profit mediation institution Senior management of a non- 32. 259 05/19 No No No Yes profit mediation institution Senior solicitor and senior management of a highly 33. 298 05/19 internationalised arbitration No Yes Yes No centre and a global international arbitration group Barrister Management of a highly 34. 299 05/19 Yes No Yes No internationalised arbitration centre Senior barrister and senior management of a global leading law firm situated in Sri Lanka, 35. 361 10/19 Yes No No No which is a local partner of Chinese enterprise in Belt and Road Initiative project Senior barrister and senior management of a global leading law firm situated in Sri Lanka, 36. 362 10/19 Yes No No No which is a local partner of Chinese enterprise in Belt and Road Initiative project Regional Senior management and senior solicitor of an international law firm with over 37. 367 10/19 70 offices in 46 countries and No Yes No No over 6000 lawyers worldwide with experience in Belt and Road Initiative cases Senior management of a barrister 38. 414 01/20 Yes No No No association of Hong Kong 07/20 Senior solicitor of a finance and 39. 102 No Yes Yes No 17 legal consultancy firm

212

References

CCPIT/CCOIC Mediation Centre 2018, ‘部门介绍’ (Department Introduction), viewed 3 April 2018, http://www.ccpit.org/Contents/Channel_4246/2018/0424/992681/content_992681.htm

Chan, CH & Lin, F 2018, ‘Dispute Resolution under the Belt and Road Initiative: Constructing an Effective Mediation Regime in the Guangdong- Hong Kong-Macau Bay Area’(一帶一路倡議下的爭議解決：在粵港澳大灣區構建有效的調解體系), CSHK Policy Paper, No. 9.

Chan, PCH & Nijhoff, B 2017, ‘Mediation in contemporary Chinese civil justice: a proceduralist diachronic perspective’, Martinus Nijhoff Publishers, Leiden, viewed 22 May 2020, https://doi.org/10.1163/9789004342392

Cheng, YWT 2018, ‘Welcome Remarks’, Belt and Road Summit, viewed 3 Nov 2018, http://www.beltandroadsummit.hk/pdf/Programme/DOJ_Ms_Teresa_Cheng.pdf

China Railway Group Limited 2019, 2018 Annual Report, viewed 8 June 2020, http://www.crecg.com/english/resource/cms/article/2812/10070569/2019052008474 847893.pdf

Holloway, D, Lin F, Li, LC, Zheng, XH & Kwok, MT 2018, ‘強化香港作為「一帶一路」倡議中國際爭議解決樞紐的地位’ (Strengthening Hong Kong’s Position as an Arbitration Hub in the Belt and Road Initiative), CSHK Policy Paper, No. 8.

Hong Kong Judiciary 2014, Practice Direction 31, viewed 22 May 2020, https://legalref.judiciary.hk/lrs/common/pd/pdcontent.jsp?pdn=PD31.htm&lang=EN

Hong Kong Judiciary 2008, Cap. 4A The Rules of the High Court, viewed 22 May 2020, https://www.civiljustice.hk/gaz_sub_leg/documents/rhc/RHC_Order_1A.pdf

Hong Kong Mediation Accreditation Association Limited 2013, ‘Hong Kong Mediation Accreditation Association Limited (‘HKMAAL’) goes live’, Hong Kong Mediation Accreditation Association, viewed 8 June 2020, http://www.hkmaal.org.hk/en/news_details.php?num=5

Hong Kong Mediation Accreditation Association Limited 2013a, How to become a Mediator, viewed 8 June 2020, http://www.hkmaal.org.hk/en/HowToBecomeAMediator_G.php

213

Hopt, KJ & Steffek, F 2013, ‘Mediation: Comparison of Laws, Regulatory Models Fundamental Issues’, in KJ Hopt & F Steffek (ed.), Mediation: Principles and Regulation in Comparative Perspective, Oxford University Press, Oxford, pp.3.-130.

Ng, K 2014, ‘Hong Kong's rule of law ranks 16th in the world’, South China Morning Post, 6 March, viewed 8 June 2020, https://www.scmp.com/news/hong- kong/article/1441292/hong-kongs-rule-law-ranks-16th-world

Queen Mary University of London 2018, ‘2018 International Arbitration Survey: The Evolution of the International Arbitration’, White & Case, viewed 8 June 2020, https://www.whitecase.com/sites/whitecase/files/files/download/publications/2018- international-arbitration-survey.pdf

Schwab, K 2018, ‘The Global Competitiveness Report 2019’, World Economic Forum, view 8 June 2020, http://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2019.pdf

The Law Society of Hong Kong, 2020, Monthly Statistics on the Profession (Updated as of 31 May 2020), viewed 17 June 2020, https://www.hklawsoc.org.hk/pub_e/about/#governmanet

The Supreme People’s Court of The People’s Republic of China 2016, ‘贺荣会见香港国际仲裁中心主席郑若骅一行’ (He Rong met with the HKIAC Chairman Teresa Cheng and its delegation), viewed 8 June 2020, http://www.court.gov.cn/shenpan-xiangqing- 31791.html

Wang, GG, Lee, YL & Leung, MF 2017, ‘一带一路’争端解决机制’ (Dispute Resolution Mechanism for the Belt and Road Initiative), Zhejiang University Press, Hangzhou.

214

Chapter 6

Belt & Road Sustainability and Role of Hong Kong

1. Introduction

In August 2019, People’s Daily published an article, ‘On the Great Power Diplomacy with Chinese Characteristics in the New Era’, reiterating the message that the Belt and Road (B&R) is a platform for promoting a community of shared future for mankind. BRI is a developmental, collaborative and open initiative, which though proposed by the Chinese Government is not ‘owned’ by China. The countries along the B&R have poor infrastructures and their economies are still developing, so that the inflow of Chinese capital and talent will fill a gap. At the same time, the B&R countries will be new markets for Chinese commodities. The vision is thus a win-win situation for multiple stakeholders, and both the host country and China will benefit. In practice, host countries have had a rather mixed reception towards the initiative. Whilst welcoming the prospect of additional resources, there are also serious doubts, and sometimes open opposition, to the various risks and issues brought by the Chinese investment activities, from environmental pollution and degradation, unmet community needs and cultural differences, to suspected corruption and territorial threat.

Facing complaints from local communities in the host countries, the Chinese enterprises executing the projects responded variably. As the research team talked to various stakeholders, we note that some display a higher level of readiness to acknowledge the differences in culture, expectations and managerial approach, which breed tension and conflicts, and see the need for more communication and flexibility to improve mutual understanding and cooperation. A more prevalent view, often found amongst the large state-owned enterprises and government, would insist the benevolent nature of the investments to the host country. It stresses the ‘internal challenges’ to the Chinese system of the Chinese B&R investments and the strenuous efforts the Chinese side is exerting for the intended benefits to the host country. This latter view believes that the critiques from the locals on the projects are due to problems in local governance and domestic politics, which should be the responsibility of the host government, not the Chinese enterprises. The international criticisms are attributable to the self-interest of respective countries and biases against a peaceful rise of China as a new global power. Accordingly, there is little felt need for the enterprises to proactively address the local 215 grievance, apart from complaining of the ineffectiveness of the response of the host government. However, as little is subsequently done to mitigate the local complaints against the projects, dissatisfaction accumulates and tension rises, eventually hurting the sustainability of the projects.

We believe that one feasible way to contain this trend of escalation of tension and sustainability risks is to raise the ‘ESG’ (which stands for environmental, social and governance) standards in BRI projects. International standards of ESG require more detailed planning, better communication with the local people and more consideration of views from diverse stakeholders as part of the project design. Project performance will hence benefit and the intended BRI vision of sustainable co-development will be better attained.

This chapter will first review the sustainability risks of B&R projects, drawing from the in- depth interviews the research team conducted on project execution issues. Then we shall discuss how ESG may help with mitigating the project sustainability risks and the role of Hong Kong professional services in that regard.

2. What affects B&R sustainability

In a recent report, Harmonizing Standards and Financing Standards Towards Sustainable Development along the Belt and Road, jointly published by United Nations Development Programme (UNDP) and China Development Bank (CDB), sustainability risks of BRI projects are discussed in five broad categories, (1) economic, (2) legal and political, (3) cultural, (4) debt sustainability, (5) environmental and social (UNDP and CDB, 2019). We would not repeat the generic discussion here. In this section sustainability risks will be discussed more at the corporate and project level. We focus on understanding from our respondents what risks are critical from the perspective of the firm or the project. We also asked what lead to the risks and challenges, and what can be done to mitigate the risks. The respondents cover a number of diplomats from consulates of B&R countries in Hong Kong, professionals and businesspeople having experience in BRI-related work, and Chinese companies and officials.

Seven issues are identified and summarized here.

2.1 Need for effective public communication platforms

When information is not sufficiently transparent, the public would tend to query and build up 216 negative perceptions. On the contrary, if the government can openly and fully disclose the information of concern to the media and the public, many unnecessary misunderstandings could be avoided. Talking from their own experience, respondent 367 from a leading international consultancy firm and a diplomat (respondent 256) urged the Chinese government to pay more attention to the importance of communication and set up a good platform for public information dissemination. They talked about their routine frustrations in searching for information on the Chinese government websites. China should invest more resources in ensuring timely, multi-channel and multi-lingual information dissemination to a good degree of details, so that people from different countries can access quality information on BRI projects in their respective countries easily. Persistently keeping up the quality of publicly available information on a timely, day-to-day basis is a fundamental first step for ensuring the transparency and openness of the BRI.

2.2 A State-led strategy and conspicuous role of the Chinese government

In international media discussions, the BRI is often described as a state-led strategy with controversial geopolitical and economic objectives. The strong role of the government is broadly acknowledged by Chinese officials and business, state or private, from its initiation as a national development strategy (respondent 23, 2017), to the organization of financing and planning of projects (respondent 003a, 2016), and execution and assessment (respondent 27, 2019). B&R projects are often branded as ‘government to government’ collaborations so that the Chinese government and the host governments negotiate and decide on a project well before the market or business sectors join the scene. This practice leaves people to doubt whether there is sufficient space for commercial considerations, however (respondent 157, 160). There is a felt need for independent and rigorous professional assessment of project feasibility to better inform strategic decisions (respondent 003a). The close association of the government sometimes leads to unnecessary speculations at the time of project adjustments. When a B&R project is perceived to be the Chinese government’s official investment, any suspension or termination of a project due to project-related considerations would be interpreted as a breakdown of the political bilateral relations between China and the host country (respondent 256, 2019). For example, in 2018, when Mahathir was re-elected as Prime Minister of Malaysia, he pledged to suspend or cancel ‘unfair’ Chinese mega-projects approved by his predecessor, Najib Razak who was accused of corruption. The decision caused heated

217 discussion of a possible crisis in China-Malaysia bilateral relations under the new government, which was subsequently denied by both sides. Mahathir also stressed the economic considerations are primary rather than political considerations against China when he met with Chinese Foreign Minister Wang Yi (Deng 2018, para1). After a year-long negotiation, one of the mega projects, the East Coast Rail Link resume in April 2019 at a reduced cost of 44 billion ringgit ($10.7 billion), from 65.5 billion ringgit.98

2.3 Closed club or open platform for participation

The big role of Chinese state enterprises in BRI projects raises serious questions whether there is a level playing field for all interested parties. A 2018 study by Centre for International and Strategic Studies, a leading US think tank, finds that 89% of 178 Chinese-funded transport infrastructure BRI-related projects in 34 countries go to Chinese contractors.99 This fuels suspicion if the Chinese enterprises are given favourable treatment by the Chinese government, and that China runs the BRI as a closed club rather than an open platform for everyone, as emphasized in the official information and promotion. There is a high degree of convergence of views in our field discussions with diverse stakeholders that it would be advantageous to separate more clearly the roles of the government and enterprises (mainly state-owned enterprises) in the management of the projects. Two professionals with business along B&R countries (respondent 160 and 367) shared their reservations about China's true intention for international participation, because the Chinese government or enterprises often impose restrictive clauses when signing contracts with foreign countries to require the hire of a Chinese contractor for Chinese funded projects. It is like ‘transferring financing funds from the left pocket (in the form of loans) to the right pocket (project construction fees)’ (for more details, refer to Chapter 3 section 1).

The question of transparency and fair participation has been an old issue attracting China and

98The 640 kilometres East Coast Rail Link (ECRL) project that link up Northern Malaysian major cities was once stopped during this suspension. The project lead contractor, China Communications Construction Co Ltd was under attack. ‘ECRL is officially back on track after year-long suspension,’ Malay Mail, viewed 7 June 2020, https://www.malaymail.com/news/malaysia/2019/07/25/ecrl-works-officially-back-on-track-after-year-long- suspension/1774678 99 ‘Chinese contractors grab lion’s share of Silk Road projects’, Financial Times, viewed 1 June 2020, https://www.ft.com/content/76b1be0c-0113-11e8-9650-9c0ad2d7c5b5 218

BRI a lot of international criticism. In May 2017, on the eve of the conclusion of the First Belt and Road Cooperative Forum held in Beijing, all the attending 28 EU representatives refused to endorse a statement drafted by China, apparently without a priori consultation, in protest of the felt shortfalls in transparency and co-ownership of the BRI.100 In April 2018, 27 EU ambassadors to China signed a report completed by the European Commission bitterly criticizing the secretive approach to procurement and bidding in BRI-related contracts, which is seen to give an unfair advantage to Chinese companies, and state enterprises in particular, against competition from European and other companies.101 More recently, a poll of 132 European companies by the European Union Chamber of Commerce in China, released in January 2020, reports that the situation has hardly improved.102 Only 20 out of the 132 firms have bid for projects related to BRI. Out of the 20, only 2 got to know the bidding opportunities through publicly available information, whilst the vast majority are alerted or invited to participate through the Chinese government or a partner company.

A senior professional based in Beijing shared a similar message based on her experience and observations. ‘There is no level playing field, frankly, but we are trying our best to get a foot in. The difficulty starts from the very beginning. You don’t even know there is a bid, when it is coming, or its details, let alone in winning it.’ (respondent 023b, 2018) In fact, some diplomats (respondent 112 & 120) and academia (respondent 021 & 176) have suggested to retitle the BRI as ‘II’ (International Initiative), to drive home the message that it is an initiative for the participation of all parties in the international community.

2.4 Weak awareness of corporate social responsibility

It is widely acknowledged that Chinese enterprises are strong in the technical execution of infrastructure projects; however, their broader sustainability standards are weak including their

100 Phillips, T 2017, ‘EU backs away from trade statement in blow to China's 'modern Silk Road' plan’, The Guardian, viewed 1 June 2020, https://www.google.com/amp/s/amp.theguardian.com/world/2017/may/15/eu- china-summit-bejing-xi-jinping-belt-and-road 101 Prasad, R 2018, ‘EU Ambassadors Condemn China’s Belt and Road Initiative’, The Diplomat, viewed 6 June 2020, https://thediplomat.com/2018/04/eu-ambassadors-condemn-chinas-belt-and-road-initiative/. Hungary is the only EU member state opting out of the report. 102 ‘Lack of transparency in China's Belt and Road projects: EU firms’, Bangkok Post, viewed 6 June 2020, https://www.bangkokpost.com/world/1837124/lack-of-transparency-in-chinas-belt-and-road-projects-eu-firms 219 understanding of corporate social responsibility (CSR) (respondents 160, 256, 260, 312 & 335). Chinese enterprises are keen on improving technical efficiency and the accounting books of the projects, but they do not respect sufficiently the interests of local community and are insensitive of cultural differences. Environmental protection measures are minimal, posing grave concerns of social and environmental impact of the BRI projects (respondent 120, 261).

Quite a number of interviewees (respondent 114 & 247 from different chambers of commerce, 120, 160, and 255) have compared the Chinese enterprises to European companies. They indicated that given the same project and the same profit benchmark, the local communities would prefer to choose a European enterprise as they perceive the European enterprises having better performance in social responsibilities.

2.5 Generate more direct benefits for local population

Most B&R projects are in the sectors of energy, mining and transport infrastructure. Despite the huge amount of investment, investments in these areas may not generate immediate and direct benefits to the local communities. On the contrary, those mining and road construction projects may damage the local environment or require relocation of communities, thus causing life disruption and resentment. Respondent 112, a diplomat from a B&R country based in Hong Kong, cited his own country as an example, sharing that China should invest in a larger variety of projects other than the capital extensive oil fields and refinery facilities, so as to generate more direct benefits to local communities and an improved living environment. For example, investment in manufacturing can hire a large number of local workers or expanding zero- pollution industry such as tourism.

2.6 Need for good people-to-people connectivity programmes

The significance of people-to-people programmes is to enhance mutual understanding. However, another Hong Kong-based diplomat from Southeast Asia (respondent 124) commented that thoughtful designs and sensitive implementation are necessary to achieve the desired results. For example, Hong Kong has invested HKD 1 billion for the Belt and Road Scholarship to assist students from countries along the B&R to come to Hong Kong in past few

220 years.103 Many funded students who come to Hong Kong turn out from the wealthy second- third generation Chinese immigrant communities instead of from the indigenous groups of a more underprivileged background. The benefits of the scheme for people-to-people connectivity across cultures are thus reduced. The diplomat suggests a need to improve the selection criteria. She shared that, for example, the Australian government has formulated more refined criteria in its scholarship programme for students from less developed countries to ensure a good background diversity of the scholarship recipients. There are also clearer requirements of interactions between local and foreign students during the study period to achieve the intended objective (respondent 124, 2017).

3. ESG and Sustainability

Promoting ESG in BRI projects will be instrumental to improving the performance of the projects in meeting the vision of enhancing connectivity and principles of co-development and co-ownership. ESG in Hong Kong has undergone progressive developments more recently. These include the strengthening of the ESG reporting system for listed companies and the development of green finance. What is exactly ESG and why will it help to address the sustainability issues discussed above?

‘Environmental, Social, and Governance’ (ESG) refers to the three central factors in measuring the sustainability and societal impact of an investment in a company or business. Sustainability, according to an often-quoted definition from Our Common Future, refers to ‘development that meets the needs of the present without compromising the ability of future generations to meet their own needs’ (World Commission on Environment and Development, 1987, p.40). According to United Nations and various investment consultants such as Investopedia, MSCI and Fidelity etc., ESG comprises the following categories:

• Environmental criteria consider how a company performs as a steward of nature. This includes: Action on climate change, Greenhouse gas emissions and reductions, Water usage. Other definitions also extend to company’s energy use, waste, pollution, natural resource conservation, and treatment of animals.

103 Zhao, S, & Tsang, E 2016, ‘Hong Kong education secretary defends HK$1b scholarship fund for One Belt, One Road students’, South China Morning Post, viewed 7 June 2020, https://www.scmp.com/news/hong- kong/education-community/article/1901329/hong-kong-education-secretary-defends-hk1b 221

• Social criteria examine how it manages relationships with employees, suppliers, customers and the communities where it operates. Themes include: Labour standards, Health and safety performance, the way a company treats clients and customers. Some criteria also look at the company’s business relationships. Does it work with suppliers that hold the same values as it claims to hold? Does the company donate a percentage of its profits to the local community or encourage employees to perform volunteer work there? Do the company’s working conditions show high regard for its employees’ health and safety? Are other stakeholders’ interests taken into account?

• Governance criteria deal with a company’s leadership, executive pay, audits, internal controls and shareholder rights. This includes: Anti-corruption measures, tax transparency, how are decisions made across the executive board? It also refers to that a company uses accurate and transparent accounting methods and that stockholders are given an opportunity to vote on important issues.

We believe that the concepts of ‘environmental’, ‘social’ and ‘governance’ emphasized by ESG correspond to the challenges encountered by Chinese enterprises in implementing the BRI. In the table below, we match the criticisms of unsustainability of the B&R projects with the 32 sub-items involved in ESG defined by the United Nations in order to reveal how these challenges could be overcome by strengthening ESG.

Table 1. ESG and B&R Areas involved Corresponding problems to solve A. 1. Air & water pollution 2.4 Weak awareness of corporate Environmental 2. Biodiversity social responsibility 3. Climate change 4. Deforestation 5. Ecosystem services 6. Energy efficiency 7. Hazardous materials 8. Land degradation 9. Resource depletion 10. Waste management 11. Water scarcity B. Social 1. Customer satisfaction 2.1 Need for effective public 2. Data protection & privacy communication platforms 3. Diversity & equal opportunities 222

Areas involved Corresponding problems to solve 4. Employee attraction & retention 2.6 Need for good people-to- 5. Employee engagement people connectivity programmes 6. Government & community 2.5 Generate more direct benefits relations for local population 7. Human capital management 8. Human rights & indigenous rights 9. Labour standards 10. Marketing communication 11. Product mis-selling 12. Product safety & liability 13. Supply chain management C. Governance 1. Accounting standards 2.2 A State-led strategy and 2. Anti-competitive behaviour conspicuous role of the Chinese 3. Audit committee structure government 4. Board composition 5. Anti-bribery & corruption 2.3 Closed club or open platform 6. Business ethics for participation 7. Executive remuneration 8. Risk management 9. Independence of Chairman 10. Succession planning 11. Whistleblower mechanism

Source: Hong Kong Financial Services Development Council and authors

• In response to the ‘2.1 Need for effective public communication platforms’ there is a need to put more effort into enhancing the ability of ‘B10 Market Communication’ so as to improve external publicity and communication. However, it is vital for the projects to comply with every detailed requirement of ESG so that they would have substantial values worth promoting.

• As for ‘2.6 Need for good people-to-people connectivity programmes’, it is essential to improve ‘customer satisfaction’ and ‘government-community relations’ to strengthen exchanges with the people, so that local people would believe that their ‘human rights and the interests of the original inhabitants’ are protected.

223

• Avoid ‘2.5 Generate more direct benefits for local population’, but also encourage companies to understand the needs of local people, as well as avoid swarming into the most popular industries for investment.

• For ‘2.2 A State-led strategy and conspicuous role of the Chinese government’, it depends on whether ‘governance’ can be implemented to persuade the public that the projects are carried out under fair conditions and there is no ‘anti-competitive behaviour’ or violation of ‘Anti-bribery and anti-corruption’.

• To improve the external image of ‘2.3 Closed club or open platform for participation’, it is also necessary to strengthen ‘governance’, where ‘risk management’ includes diversification of equity, allowing more participants to join and share profits and risks together.

• To overcome the challenge of ‘2.4 Weak awareness of corporate social responsibility’, it is of paramount importance to enhance ‘environmental’ awareness so that the projects would not cause damages to the environment and ecology.

How should the enterprises participating in the BRI be facilitated to implement ESG as mentioned above? Hong Kong could play a vital role including development of green bond market, enhancing awareness of environmental protection in the BRI, assisting in the establishment of ESG reporting system, and leveraging on professional services in Hong Kong to improve project quality.

4. Hong Kong’s role in facilitating ESG for B&R Projects

4.1 Development of the green bond market

Green finance refers to financial institutions taking environmental protection as one of the basic criteria when making investment decisions. In financing business activities, they consider the potential returns, risks, and costs related to environmental conditions. They focus on the protection of the ecological environment and the treatment of environmental pollution to facilitate sustainable development through the allocation of social and economic resources.

Green bond is a type of green finance. In general, investors are willing to buy green bonds at a price slightly lower than the market interest rate. While issuers can issue green bond at a lower cost, they need to obtain certification to prove that their projects comply with the environmental

224 protection requirements. 104 After the issuance of bonds, the projects must be regularly reviewed by independent third parties to ensure compliance with the environmental protection standards listed in the issuance clause. In other words, the key to the development of the green bond market is to ensure that enterprises that issue green bonds truly invest the funds raised in green projects. However, according to the Hong Kong Trade Development Council’s research, this is precisely the major weakness of Chinese enterprises: 105

• In China, there is a lack of standards and guidance on certification scopes, processes and reporting for certification services providers. In addition, there is no entry requirements and self-regulatory guidelines to regulate those certification institutions in the market. Therefore, third-party certification reports do not have credibility.

• China lacks a full information disclosure system. Judging from the certification reports issued in mainland China, there is a lack of qualitative and/or quantitative analysis to support the assessment. Investors do have information to fully understand the basis, characteristics of measurement standards and potential risks of the projects financed by the green bonds.

• Lack of responsible investors. As the green bond market continues to expand, institutions such as trusts and securities firms have gradually increased their investment in green bonds. However, in practice, many investors would still focus on the risks and returns regardless of whether the bond is green or not.

We believe that Hong Kong could contribute to alleviate the above limitations. In particular, Hong Kong could help Chinese enterprises to expand their financing channels by issuing green bonds to finance their projects along the B&R countries. In January 2019, the research team co-organised with Financial Services Development Authority a well-attended seminar entitled ‘Innovation Development and Talent Demand in Green Finance’ to explore the development of green bond market in Hong Kong. The seminar features expert speakers from government,

104 For more details please refer to the following source. World Bank 2015, ‘What Are Green Bonds?’, https://www.worldbank.org/en/topic/climatechange/brief/what-are-green-bonds 105 For more details, please refer to the following sources. HKTDC 2017, ‘标准化绿色债券推进"一带一路"建设 ’ (Standardized Green Bonds boost Development of Belt and Road), https://beltandroad.hktdc.com/sc/insights/biaozhunhualusezhaiquantuijinyidaiyilujianshe; Yuen, J 2020, ‘Green Finance Development and Hong Kong’s Role’, https://research.hktdc.com/en/article/NDM2NjM5OTk5 225 the financial services sector and industries. Participants agreed that Hong Kong is one of the most active fund-raising centres in the world, and Hong Kong has a sound certification system. If enterprises would like to issue green bonds to finance B&R projects, Hong Kong could provide one-stop services including certification of green projects, due diligence and bond issuance for these projects. According to the Hong Kong Monetary Authority (HKMA) and various developments, Hong Kong has the following competitive edges in the development of green bond market: 106

• Trustworthy intermediary hub. Hong Kong brings together talents from all over the world and follows international assessment standards. The Hong Kong Quality Assurance Agency (HKQAA) developed the ‘Green Finance Certification Scheme’ in 2016 with reference to international standards including the Clean Development Mechanism under the United Nations Framework Convention on Climate Change, Green Bond Principles of the International Capital Market Association, The People's Bank of China Announcement No. 39 and its Annex - Green Bond Endorsed Project Catalogue and ISO 26000:2010 Guidance on Social Responsibility. There are two kinds of certificates that can be issued by HKQAA: a.) Pre-issuance Stage Certificate - an as-at certificate that requires validation of the adequacy of the Environmental Method Statement in producing positive environmental effects; b.) Post-issuance Stage Certificate - requires verification of the continuous implementation and effectiveness of the Environmental Method Statement regarding the proposed positive environmental effects.107 Apart from HKQAA, a number of internationally renowned green bond assessment agencies have also set up offices in Hong Kong to provide assessment and certification services for onshore or offshore green bonds issuers of the B&R projects.

• The status of an international financial centre. According to the statistics of the HKMA, Hong Kong is the main bond hub in Asia and the amount of debt issued ranks third after mainland China and South Korea. Since the launch of Bond Connect in July 2017 which connects Hong Kong and the mainland markets, the Hong Kong bond market has become more active. Hong Kong is home to the regional headquarters of many international

106 HKMA 2018, ‘Green Bond Market: Hong Kong’s Unique Role’, viewed 1 June 2020, https://www.hkma.gov.hk/media/eng/publication-and-research/quarterly-bulletin/qb201809/fa1.pdf 107 For more details about Green Certification, please refer to the following source. HKQAA, ‘Green Finance Certification Scheme’, http://www.hkqaa.org/en_certservice.php?catid=26 226

financial institutions. The rule of law and trading system are well established. It should be an ideal market for enterprises to raise funds for the B&R projects.

• Vigorous promotion by the HKSAR government. In the 2018-19 Budget, the Financial Secretary announced the issuance of a government green bond scheme with an upper limit of HKD 100 billion and would use the capitals to fund the government’s green public projects. The first batch of HKD 1 billion bonds was issued in May 2019, and the yield at the time of pricing was 2.555% (a gap of 32.5 basis points from the 5-year U.S. Treasury bond). Despite the recent volatility in the financial market, global investors' strong demand for these green bonds has attracted more than $ 4 billion in subscriptions, which is more than four times the amount issued, making the final price narrowed by 17.5 basis points than the initial price guidance.108 In addition to taking the lead and boosting the green bond market in Hong Kong, the Hong Kong government has also revised the Qualifying Debt Instrument (QDI) scheme to reduce the tax burden of investing in Hong Kong bonds. The HKMA also organized large-scale international conferences to enhance the understanding of green finance among financial practitioners.109

In fact, the amount of green bond issuance in Hong Kong is increasing, and the total fund raised has increased to HKD 11 billion by the end of 2019.110 The Financial Secretary Paul Chan expected that the green bond finance will increase 200% by 2020.111 We believe that with this favourable foundation, Hong Kong can also strengthen the following areas:

• Cultivate local certification bodies and also attract overseas authoritative institutions to set up offices in Hong Kong to enhance the credibility of Hong Kong certification system. As mentioned earlier, the core of issuing green bonds is an internationally recognized

108 The Government of HKSAR 2019, Press Release: HKSAR Government's Inaugural Green Bond Offering, viewed 22 June 2020, https://www.info.gov.hk/gia/general/201905/22/P2019052200254.htm 109 Inland Revenue Department of Government of HKSAR 2020, Qualifying Debt Instruments, viewed 22 June 2020, https://www.ird.gov.hk/eng/faq/qdi.htm 110 Climate Bonds Initiative 2020, Hong Kong green bond market briefing, viewed 22 June 2020, https://www.climatebonds.net/files/reports/cbi_hk_briefing_2020_02c.pdf 111 ‘香港財政司陳茂波：今年綠色債券的發行將會有 200%的增長’ (Paul Chan Mo-po of Hong Kong Financial Secretary: There would be 200% increase in the issue of green bonds), Sina Beijing, viewed 22 June 2020, https://news.sina.com.tw/article/20200113/33975666.html 227

certification system. Hong Kong government should increase funding for HKQAA to recruit more talents, accumulate more cases, and enhance international credibility. In addition, Hong Kong government should also attract more overseas authoritative certification bodies (such as Moody's, CICERO, Vigeo Eiris and Sustainalytics, etc.) to set up offices in Hong Kong or expand their businesses.

• Strengthen industry training and exchanges to better understand the BRI. China ’s green bond issuance in 2019 amounts to 339.602-billion-yuan. Although the proportion of bonds related to B&R projects is still small, it has become a growth point.112 In April 2019, the Industrial and Commercial Bank of China issued USD 2.2 billion in green ‘Belt and Road Inter-bank Regular Cooperation bond’. 113 Therefore, there is a need to strengthen the training in Hong Kong. For example, the government or the government-subsidized academic and professional sectors should actively invite more B&R business leaders to come to Hong Kong to communicate with the industry to establish better contacts. The government should also allocate funds to relevant groups to organize more training courses.

• Strengthen the promotion to enterprises participating in the BRI. The competition in international financial market has become increasingly fierce, including Shanghai, Singapore and even London. These cities all intend to compete with Hong Kong as a financing location for the B&R projects. However, many stakeholders in the industry believe that the Hong Kong government still adopts the ‘big Market, small Government’ principle and has not taken the initiative to actively help the industry to attract more business opportunities. We believe that if the governments of other countries allocated resources to assist their enterprises to expand in overseas markets, but the Hong Kong government takes no similar actions, it would put Hong Kong enterprises in disadvantageous position. The Hong Kong government has already launched the Professional Services Advancement Support Scheme (PASS) to allow professional sector to apply for enhancing their development. However, the Scheme has rooms for improvement such as increasing the type and amount of funding, so that the Hong Kong

112 ‘新华财经·报告 | 2019 年中国绿色债券市场发展回顾’ (Xinhua Finance Reports: 2019 Review on Chinese Green Bonds Market), Xinhua Finance, viewed 22 June 2020, http://greenfinance.xinhua08.com/a/20200110/1907055.shtml?f=topnav 113 Li, X 2019, ‘ICBC issues first green BRI inter-bank regular cooperation bonds’, Xinhua Net, viewed 22 June 2020, http://www.xinhuanet.com/english/2019-04/18/c_137987624.htm 228

professional sector would have more resources to promote their services, especially for B&R enterprises and countries. We understand that using public fund to assist commercial activities may be subject to criticism. As long as there are sound reasons to justify and evidences to support that the subsidy is beneficial to the overall development of the society instead of merely favouring certain sectors, the government should think out of the box to play a more active role.

• Provide preferential plans for issuing bonds for the B&R projects. Comparing with traditional bonds, green bonds require additional certification costs and the interest rate may not necessarily be lower than that of traditional bonds. If the certification fails, the issuers might have double losses. Although the certification cost only accounts for a small percentage of the issuance cost, some issuers would still have some concerns. The Monetary Authority of Singapore announced the Green Bond Grant Scheme in early 2017 to provide up to S $ 100,000 in subsidies for each external review of green bond issuance, thereby reducing part of the burden of issuing green bonds. Hong Kong may consider using similar approach to provide more relief or support measures to issuers and participants and ‘make the pie bigger’.

4.2 Raising the standards of ESG reporting

One of the best ways to encourage enterprises participating in the BRI to implement ESG is to require enterprises to regularly reporting the status of implementing ESG in projects. In 2011, the Hong Kong Exchanges and Clearing Limited (HKEx) published a consultation paper on ESG reporting guideline (HKEx 2011). In 2012, the HKEx released a report on consultation conclusions and planned to require listed companies to report their ESG reporting to ‘comply or explain’ by 2015 (HKEx 2012b). In 2014, the Hong Kong Companies Ordinance was rewritten, and all Hong Kong listed companies are required to include a discussion of their environmental policies, compliance, and stakeholder involvement in the directors’ reports (Lu 2016). In 2015, the HKEx published a consultation paper on revised ESG reporting guidelines. We believe that this ESG reporting framework can be applied to B&R projects enterprises requiring enterprises participating in the BRI to report the compliance of ESG by item according to the actual situation.

We believe that all of the above factors can be considered when establishing and implementing the ESG system for the projects of the B&R-related enterprises. In order to promote the related 229 work, Hong Kong SARG can also take the following measures:

• Advise the central government to implement ESG Reporting System for B&R projects. B&R projects are still dominated by large state-owned enterprises from the Mainland and we believe that these enterprises should take the lead. The State-owned Assets Supervision and Administration Commission of the State Council may initiate pilot test by selecting some directly controlled state-owned enterprises to take the lead in submitting ESG reports for their B&R projects. After reviewing and improving, the initiative could be expanded to all state-owned enterprises. When the state-owned enterprises take the lead and improve their efficiency and image, other large-scale enterprises would follow. Lobbying in this area requires the concerted effort of the Hong Kong government, the Hong Kong professional community and the academic community.

• Strengthen local ESG reporting and train more talents. If the mainland enterprises are willing to adopt ESG reporting for their B&R projects, Hong Kong must make sure that there are sufficient talents to meet the demand. According to HKEx’s Analysis of Environment, Social and Governance Practice Disclosure in 2016/2017 (2018) and BDO’s survey on ‘The Performance of ESG Reporting of Hong Kong Listed Companies’ (2018), the quality of the ESG reports in Hong Kong ‘is still far from satisfactory’ since limited ESG governance effort can be found in the reports (BDO 2018). Although there was a high level of compliance, some ESG reports had adopted a ‘box-ticking’ approach which either provided ‘short and simple statements without any explanations or details, or lengthy narratives that purported to respond to the disclosure requirement’ (HKEx 2018, p.3). Therefore, Hong Kong must strengthen its ESG reporting system and train sufficient talents in order to meet the demand.

• Establish a database to facilitate the search for Hong Kong service providers. From our interactions with some of the management of mainland and overseas enterprises, there is a consensus view that they have difficulties to find professional service practitioners from Hong Kong. They do not have information about what professional services are available in Hong Kong and their respective charges. We suggest that the Hong Kong Trade Development Council may take the lead to cooperate with the representative bodies of various professional sectors and strengthen its B&R website design, construct databases of professional service providers according to different professional categories in more detail to facilitate enterprises’ search for services.

230

4.3 Promoting Hong Kong experience

Over the past few years, the research team have visited a number of economic zones along the belt-road countries, including the China-Belarus Great Stone Industrial Park in Belarus, the Phnom Penh Special Economic Zone and the Sihanoukville Special Economic Zone in Cambodia, the Djibouti Port in Djibouti, the Colombo Port in Sri Lanka, the Hambantota Free Port (with industrial zone) in Sri Lanka, and the Saigon Hi-Tech Park in Vietnam.

We noted that a good number of Hong Kong enterprises have reached out overseas to explore investment opportunities including countries along the belt-road and have developed quite sizable and diverse portfolios. In Long Jiang Industrial Pak (LJIP) in Vietnam, Hong Kong investment contributes 30.68% of the LJIP total investment inflow (USD 1.52 billion). Hong Kong enterprises have invested in a wide range of industries, including textiles, aluminium- steel, machinery and food and beverage. The scale of investment of Hong Kong enterprises in belt-road ETCZs is flexible, ranging from USD 4 million to 350 million.114

The contribution of Hong Kong enterprises to the development of belt-road countries cannot simply be measured by the actual amount of investments. Hong Kong professionals also provide a range of ‘soft skills’-oriented supporting services, which is an important, hard to secure, resource in developing markets and similar to what they had done to the PRD. For example, the Hong Kong-based law firm Baker & McKenzie plays a pivotal role in the drafting of new laws for the establishment of the Colombo International Financial City (CIFC), an ETCZ in Sri Lanka.115 Also, the Hong Kong specialists of AECOM have provided programme management services for the Delhi-Mumbai Industrial Corridor as well as other ASEAN infrastructure projects.116 Golden Resources, a Hong Kong company active in agricultural product trade and retails, has introduced modern management and retail commerce concepts in

114 Long Jiang Industrial Park, ‘INVESTORS INFORMATION’, viewed 21 June 2020, http://ljip.vn/web/index.php/en/enterprises-in-ljip/list-of-factories 115 Jayasinghe, U 2016, ‘Govt. plans International Financial Centre’, Daily FT, viewed 21 June 2020, http://www.ft.lk/article/551814/Govt--plans-International-Financial-Centre 116 AECOM, ‘AECOM awarded US$30-million program management contract for Delhi Mumbai Industrial Corridor in Gujarat, India’, viewed 21 June 2020, https://aecom.com/press-releases/aecom-announced-today-that- it-has-been-awarded-a-program-management-contract-for-the-dholera-special-investment-region-dsir-in- gujarat-india-for-the-delhi-mumbai-industrial-corridor-dmic/ 231 its recently developed 300-plus retail chain stores in Vietnam.117

Apart from the active participation in economic activities, some super-large enterprises headquartered in Hong Kong also become a dominant stakeholder of a particular ETCZ in the belt-road countries. The China Merchants Group (CMG), a Hong Kong-based conglomerate and a state-owned enterprise, is currently operating several overseas ETCZs, including the China-Belarus Industrial Park and Djibouti Free Trade Zone as a zone manager. Experienced in Port-Park-City development model successfully practiced in Shekou, CMG provides a wide range of services for the zones and their tenants, covering strategic development and management of the zones, infrastructure construction, waste management, power supply, logistics, financing, business matching and one-stop service (such as legal consultation and business registrations with government departments).118

Hong Kong investments have in some cases instigated direct changes in government investment policy. For example, the Cambodian Government adjusted their measures in view of the large scale of investment of the Hong Kong-based Goldfame Group, which has developed into the largest sweater manufacturer in Cambodia hiring more than 30,000 workers since commencing investment there in 1996.119

Our interviews with Hong Kong investors and managers and field observations during overseas field research (See Part 3 for details) have shed more light on the contributions of Hong Kong managers and professionals in the ‘soft skill’ dimensions of investment projects, other than bringing jobs and raising living standards of their workers. These include establishing effective communication with the labour unions and introduction of incentives to enhance the productivity and skill sets of workers. A major investor in Cambodia demonstrates good practices of corporate social responsibility by participating in infrastructure development projects such as roads and water-purifying systems for the city of Phnom Penh (respondent

117 Luk, ZK 2018, ‘越南受惠貿戰港資 Circle K 高速發展’ (Vietnam benefits from Trade War, Hong Kong enterprise Circle K rising rapidly), Ming Pao, viewed 21 June 2020, https://www.mpfinance.com/fin/daily2.php?node=1543174540035&issue=20181126 118 China Merchants Group 2019, ‘ 一帶一路’ (Belt and Road), viewed 21 June 2020, http://www.cmhk.com/uploadfiles/201907/20190712145118751.pdf 119 Chan, TY, Ng, MY 2019, ‘港商保命戰: 港商赤柬腹地開廠 23 年「要迫擊炮守門口」’ (Protect Hong Kong Business: Hong Kong enterprises operates in the middle of Cambodia for 23 years but have to ‘defend with mortar at the door’), Apple Daily, viewed 21 June 2020, https://hk.finance.appledaily.com/finance/realtime/article/20190410/59467054 232

398). Another Hong Kong investor in Vietnam has adopted modern management and operational practices, and fostered an inclusive work culture in a linguistically diverse workforce (respondent 316).

In fact, B&R countries generally are keen on investments from Hong Kong enterprises. Cambodian government has signed a comprehensive avoidance of double taxation agreement (CDTA) with the HKSAR government in June 2019 (HKSAR government 29 June 2019) to encourage more Hong Kong investment. In March 2019, Hong Kong has become the top foreign investor in Vietnam (Vietnam Insider 2 March 2019). Through the exchanges with various key stakeholder groups (such as government officials, business leaders) of B&R countries in the field, the research team learnt that Hong Kong enterprises and professionals enjoy a good reputation locally as bearers of high international standards. Inward investment projects from Hong Kong are generally welcome and believed to bring positive spillovers to the development of belt-road countries.

5. Conclusion

Chinese President Xi Jinping attended the Second Belt and Road Cooperative Forum in Beijing last April and delivered a keynote speech. He concluded that the work of the Belt and Road in the past six years should be changed from ‘freehand style’ (大寫意) to co-drawing precise and meticulous ‘fine brush painting’ (工筆畫). It is interpreted that Xi has subtly expressed his concerns over the unsustainability of extensive development.

A number of Chinese companies have invested tens of billions of dollars in countries along the B&R route in the past six years to build a myriad of infrastructure, but facilities connectivity has not brought about the expected ‘people-to-people bonds’. In contrast, there has been continuous waves of condemnation against the China-led initiative. One main reason is that the enterprises executing the projects on the spot did not adequately take into account the needs and feelings of the local people during the construction process. This makes local people think that the Chinese enterprises investing there were just for a short-term plunder of resources or executing hidden orders of the Chinese government.

The Chinese enterprises met with difficulties that are rarely known for outsiders while they know their own pain points the best. At the same time, the local people complain about the development from time to time. To overcome this challenge, facilitating Chinese enterprises to

233 implement ESG would be one of the feasible ways to improve the quality of engineering projects. Related enterprises should be encouraged to issue green bonds in Hong Kong, expand funding channels and abide by the green principles. Also, they should be encouraged to adopt the ESG reporting mechanism so as to improve their governance and respond to external demands.

Hong Kong has a solid foundation in areas such as certification of qualification, project management, community governance, environmental protection and corporate publicity. We believe Hong Kong professionals could provide useful assistance to Chinese companies to implement ESG reporting for their B&G projects. Such demand in turn would undoubtedly provide more development opportunities for the professional service sector in Hong Kong. With the improvement in the quality of the B&R projects, the local people could benefit from the projects, thus leading to a win-win situation.

234

Enclosure: Interviewees List R. Code Role Institution/Sector Time Venue

003a Mid-level official State financial regulatory unit, 2016/07 Beijing China 021 Senior researcher B&R policy think tank, 2017/02 Hong Kong & in-charge Guangdong 023 Senior academic University, Beijing (foreign 2016/07, Beijing policy) 2017/03, 2018/10 023b Partner Big-four accounting firm, Hong 2017/03, Beijing Kong 2018/03 027 Senior official Central government policy 2016/07 Beijing think tank with major role in B&R 112 Diplomat Consulate-General (a Middle 2017/08 Hong Kong East country), Hong Kong 114 Senior Chamber of commerce (a 2017/08 Hong Kong management European country), Hong Kong 120 Diplomat Consulate-General (a European 2017/09 Hong Kong country), Hong Kong 124 Diplomat Consulate-General (a SE Asian 2017/09 Hong Kong country), Hong Kong 157 Office-bearer, Accountancy professional 2017/12 Hong Kong professional association, Hong Kong 160 Professional, Hong Kong firm (infrastructure 2017/12 Hong Kong accounting financing advisory) 176 Senior academic Research, party training & 2016/07 Hong Kong, policy think tank, China 2016/11 Beijing 2018/01 2018/03 247 Senior Chamber of commerce, Hong 2019/01 Hong Kong management Kong 255 Diplomat Consulate-General (a SE Asian 2019/02 Hong Kong country) 256 Diplomat Consulate-General (a SE Asian 2019/02 Hong Kong country) 261 Senior official A central government policy 2019/02 Beijing support unit 260 Diplomat Consulate-General (a SE Asian 2019/02 Hong Kong country) 335 Diplomat Consulate General (a SE Asian 2019/09 Hong Kong country) Hong Kong 367 Senior legal An international law firm in 2019/10 Telephone professional Singapore

235

References

Banker, RD, Charnes, A, & Cooper, WW 1984, ‘Some models for estimating technical and scale inefficiencies in data envelopment analysis’. Management Science, vol.30, no.9, pp.1078-1092. BDO 2018, BDO Survey: Second-year ESG Reports Show Little Improvement in Level of Disclosure and Limited Governance, BDO, viewed 1 December 2018, https://www.bdo.com.hk/en-gb/news/2018/bdo-survey-second-year-esg-reports-show- little-improvement-in-level-of-disclosure-and-limited-gover Belt & Road News 2019, ‘Belt & Road economic, trade cooperation zones create 300,000 local jobs’, viewed 11 July 2019, https://www.beltandroad.news/2019/04/07/belt-road- economic-trade-cooperation-zones-create-300000-local-jobs/ Berger-Walliser, G & Scott, I 2018, ‘Redefining Corporate Social Responsibility in an Era of Globalization and Regulatory Hardening’, American Business Law Journal, vol. 55, no. 1, pp. 167–218. ‘署理商务及经济发展局局长陈百里在’一带一路’贸易投资政策与实务交流会上的致辞’ (Bernard Chan Pak-li, Director of Commerce and Economic Development Bureau spoke at the ‘Belt and Road’ Trade and Investment Policies and Practice Seminar), viewed 20 June 2019, http://hk.mofcom.gov.cn/article/o/201811/20181102812011.shtml Charnes A, Cooper WW, & Rhodes E 1978, ‘Measuring the efficiency of decision making units’. European Journal of Operational Research, vol.2, no. 6, pp. 429-444. Carroll, AB 1999, ‘Corporate Social Responsibility: Evolution of a Definitional Construct’. Business and Society. vol. 38, no. 3, pp.268-295. Census and Statistics Department of The Government of the HKSAR 2018, The Financial Services Sector in Hong Kong, Census and Statistics Department, Hong Kong. Cherchye, L, Moesen, W, Rogge, N & Van Puyenbroeck, T 2007, ‘An introduction to ‘benefit of the doubt’ composite indicators’. Social Indicators Research, vol. 82, no.1, pp.111- 145. Corporate Knights 2017, Measuring Sustainability Disclosure, Corporate Knights, viewed 1 December 2018, https://www.corporateknights.com/reports/2017-world-stock- exchanges/ Constitutional and Mainland Affairs Bureau of the Government of HKSAR 2019, Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area, viewed 20

236

June 2019, https://www.bayarea.gov.hk/filemanager/en/share/pdf/Outline_Development_Plan.pdf CSR Asia 2011, Korean Companies Continue to Lead in Asia on Sustainability Disclosure, CSR Asia, viewed 12 August 2018, http://www.csr- asia.com/summit2011/download/PR_ASR%20final%20press%20release_20110926.pdf Deng, X 2018, ‘Malaysian Prime Minister backs Belt and Road initiative ‘, Global Times, viewed 8 June 2020, http://www.globaltimes.cn/content/1113430.shtml Egypt House of Representatives 2017, Law No. 72 of 2017 Promulgating the Investment Law, viewed 20 June 2019, https://www.gafi.gov.eg/English/StartaBusiness/Laws-and- Regulations/PublishingImages/Pages/BusinessLaws/Investment%20Law%20english%2 0ban.pdf El-Gohari, A & Sutherland, D, 2010, China's Special Economic Zones in Africa: The Egyptian Case, Paper presented in 21st CEA Annual Conference, 12-13 July, Oxford, viewed 11 July 2019, http://www.ceauk.org.uk/2010-conference-papers/full-papers/El-Gohari-and- Sutherland-CEA-Final.pdf Emrouznejad A & Barnett R 2008, ‘Evaluation of research in efficiency and productivity: A survey and analysis of the first 30 years of scholarly literature in DEA’. Socio-Economic Planning Sciences, vol. 42, no.3, pp.151–157. Esty, DC, Levy, MA, Srebotnjak, T, de Sherbinin, A, Kim, CH, & Anderson, B 2006, Pilot 2006 Environmental Performance Index, Yale Centre for Environmental Law & Policy, New Haven. Filippetti, A & Peyrache, A 2011, ‘The patterns of technological capabilities of countries: a dual approach using composite indicators and data envelopment analysis’. World Development, vol. 39, no. 7, pp.1108-1121. Hong Kong Financial Services Development Council 2018, Environmental, Social and Goverance (ESG) Strategy for Hong Kong, Hong Kong Financial Services Development Council, Hong Kong. Harvard Kennedy School 2015, Corporate Social Responsibility Disclosure Efforts by National Governments and Stock Exchanges, Harvard Kennedy School, viewed 15 August 2018, http://iri.hks.harvard.edu/files/iri/files/corporate_social_responsibility_disclosure_3-27- 15.pdf Hong Kong Monetary Authority 2017, International Financial Centre, viewed 18 August 2018, https://www.iisd.org/business/banking/sus_investment.aspxl

237

HKEx 2011, Consultation Paper: Environmental, Social and Governance Reporting Guide, Hong Kong Exchanges and Clearing Limited, viewed 12 August 2018, http://www.HKEX.com.hk/-/media/HKEX-Market/News/Market-Consultations/2011- to-2015/December-2011-Consultation-Paper/Consultation-paper/cp201112.pdf HKEx 2012a, Consultation Conclusions: Environmental, Social and Governance Reporting Guide, Hong Kong Exchanges and Clearing Limited, viewed 12 August 2018, http://www.HKEX.com.hk/-/media/HKEX-market/listing/rules-and-guidance/other- resources/environmental-social-and-governance/exchange-publications-on- esg/cp201112cc HKEx 2012b, ‘The Exchange Publishes Consultation Conclusions on Environmental, Social and Governance Reporting Guide’, Hong Kong Exchanges and Clearing Limited, viewed 12 August 2018, https://www.HKEX.com.hk/news/newsrelease/2012/120831news?sc_lang=en HKEx 2015a, Consultation Paper on Review of the Environmental, Social and Governance Reporting Guide, Hong Kong Exchanges and Clearing Limited, viewed 12 August 2018, https://www.HKEX.com.hk/-/media/HKEX-Market/Listing/Rules-and- Guidance/Other-Resources/Environmental-Social-and-Governance/Exchange- Publications-on-ESG/cp201507.pdf HKEx 2015b, Consultation Conclusions on Review of the Environmental, Social and Governance Reporting Guide, Hong Kong Exchanges and Clearing Limited, viewed 12 August 2018, http://www.HKEX.com.hk/-/media/HKEX-Market/News/Market- Consultations/2011-to-2015/July-2015-Consultation- Pape/Conclusions/cp201507cc.PDF HKEx 2017, Analysis of Corporate Governance Practice Disclosure in 2016 Annual Reports, Hong Kong Exchanges and Clearing Limited, viewed 12 August 2018, https://www.HKEX.com.hk/-/media/HKEX-Market/Listing/Rules-and- Guidance/Other-Resources/Exchanges-Review-of-Issuers-Annual-Disclosure/Review- of-Implementation-of-Code-on-Corporate-Governance- Practices/CG_Practices_201612_e.pdf?la=en HKEx 2018, Analysis of Environment, Social and Governance Practice Disclosure in 2016/2017, Hong Kong Exchanges and Clearing Limited, viewed 12 August 2018, https://www.HKEX.com.hk/-/media/HKEX-Market/Listing/Rules-and-

238

Guidance/Other-Resources/Environmental-Social-and-Governance/Exchange- Publications-on-ESG/esgreport_2016_2017.pdf?la=en HKTDC 2013, The search for low-cost production bases in Southeast Asia, Hong Kong Trade Development Council, viewed 11 July 2019, https://hkmb.hktdc.com/en/1X09U0V5/hktdc-research/The-search-for-low-cost- production-bases-in-Southeast-Asia HKTDC 2019, Overview of Manufacturing Investment and Partnership in Southeast Asia, South Asia, Central and Eastern Europe and Others, Hong Kong Trade Development Council, viewed 11 July 2019, https://research.hktdc.com/en/article/Mzg4MjUzODI4 IISD 2013, ‘Sustainable investment’, International Institute for Sustainable Development, viewed 16 August 2018, https://www.hkma.gov.hk/eng/key-functions/international- financial-centre.shtml ISO 2010, ISO 26000:2010 Guidance on social responsibility, International Standardization Organization, viewed 12 August 2018, https://www.iso.org/standard/42546.html KPMG 2017, The ESG journey begins: 2017 ESG reporting survey of Hong Kong listed issuers, Klynveld Peat Marwick Goerdeler, viewed 12 August 2018 https://assets.kpmg.com/content/dam/kpmg/cn/pdf/en/2017/11/the-esg-journey- begins.pdf KPMG 2018, ESG reporting review 2018: The journey continues, Issue 2, Klynveld Peat Marwick Goerdeler, viewed 12 August 2018, https://assets.kpmg/content/dam/kpmg/cn/pdf/en/2018/08/esg-reporting-review-02.pdf Krosinsky, C & Robins, N (eds.) 2012, ‘Sustainable Investing: The art of Long-term Performance’, Routledge, London. Logistics Department of the Government of HKSAR 2016, The 2016 Policy Address: Innovate for the Economy, Improve Livelihood, Foster Harmony, Share Prosperity, viewed 28 November 2018, https://www.policyaddress.gov.hk/2016/eng/pdf/PA2016.pdf Lovell, CAK & Pastor, JT 1995, ‘Units invariant and translation invariant DEA models’, Operations Research Letters, vol. 18, no. 3, pp.147–151. LSEG 2018, Revealing the Full Picture, London Stock Exchange Group, viewed 28 November 2018, https://www.lseg.com/sites/default/files/content/images/Green_Finance/ESG/2018/Febr uary/LSEG_ESG_report_January_2018.pdf

239

Lu, HT 2016, ‘The ‘legalisation’ of corporate social responsibility: Hong Kong experience on ESG reporting’, Asia Pacific Law Review, vol. 24, no. 2, pp.123-148. Moratis, L 2016, ‘Out of the ordinary? Appraising ISO 26000’s CSR definition’. International Journal of Law and Management, vol. 58, no. 1, pp. 26-47. MSCI 2018, MSCI ESG universal indexes methodology, Morgan Stanley Capital International, viewed 23 August 2018, https://www.msci.com/eqb/methodology/meth_docs/ESG_Universal_Index_Methodolo gy.pdf Murias, P, Novello, S & Martinez, F 2012, ‘The regions of economic well-being in Italy and Spain’, Regional Studies, vol. 46, no. 6, pp.793-816. Nino, FS 2015, Sustainable Development Goals, United Nations. Nardo, M 2008, Handbook on Constructing Composite Indicators-Methodology and User Guide, OECD Publishing. Nasdaq 2017, ESG Reporting Guide, viewed 28 November 2018, https://business.nasdaq.com/media/ESG-Reporting-Guide_tcm5044-41395.pdf Porter, ME, Stern, S & Green, M 2014, Social progress index 2014, Social Progress Imperative, Washington, DC. Rezaeiani, MJ & Foroughi, AA 2018, ‘Ranking efficient decision making units in data envelopment analysis based on reference frontier share’. European Journal of Operational Research, vol. 264, no. 2, pp.665-674. Saeidi, R, Amin, G, Raissi, S & Gattoufi, S 2013, ‘An efficient DEA method for ranking woven fabric defects in textile manufacturing’, International Journal of Advanced Manufacturing Technology, vol. 68, pp.349–354. Saisana, M, Tarantola, S 2002. State-of-the-art report on current methodologies and practices for composite indicator development. European Commission, Joint Research Centre, Institute for the Protection and the Security of the Citizen, Technological and Economic Risk Management Unit, viewed 28 November 2018, https://op.europa.eu/en/publication- detail/-/publication/9253d939-b47b-4428-b792-619e6b6c8645 Oriental Daily 2016, ‘探射燈：港商外地設廠須評估風險 ’(Searchlight: Hong Kong enterprises expanding overseas market should assess risks) , viewed 28 November 2018, https://orientaldaily.on.cc/cnt/news/20160722/00176_107.html

240

Sou, WK 2019, ‘港商：內地以外設廠基建政策風險勿忽視’ (Hong Kong enterprises: prepare for risks in infrastructure policies when setting up factories out of Mainland China), HKET, viewed 11 July 2019, https://paper.hket.com/article/2244462/港商%EF%BC%9A 內地以外設廠%20 基建政策風險勿忽視 de Souza Cunha, FAF & Samanez, CP 2013, ‘Performance analysis of sustainable investments in the Brazilian stock market: a study about the corporate sustainability index (ISE)’, Journal of Business Ethics, vol. 117, no.1, pp.19-36. State-owned Assets Supervision and Administration Commission of the State Council International Cooperation Bureau 2018, ‘国资委与香港商务及经济发展局在港举办「与央企共赢‘一带一路’机遇-产业园区投资环境交流会」阎晓峰出席并致辞’ (State-owned Assets Supervision and Administration Commission of the State Council International Cooperation Bureau held ‘Win together with central enterprises in Belt and Road, Opportunities and Industrial Zone Investment Environment Seminar’. Yan Xiaofeng attended and delivered a speech), viewed 20 June 2019, http://www.sasac.gov.cn/n2588025/n2643314/c9374856/content.html Swiss Federal Department of Foreign Affairs and United Nations Global Compact 2004, Who Cares Wins: Connecting Financial Markets to a Changing World, Swiss Federal Department of Foreign Affairs and United Nations Global Compact, viewed 15 August 2018, https://www.unglobalcompact.org/library/218 Thailand Board of Investment 2014, Investment Promotion in Special Economic Development Zones, viewed 1 July 2019, https://www.boi.go.th/upload/content/BOI.No4_2557_17525.pdf The Chinese Manufacturers' Association of Hong Kong 2016, ‘香港「再工業化」的迷思：路漫漫兮’ (Myth of Hong Kong’s Reindustrialization: long slog ahead), The Chinese Manufacturers' Association of Hong Kong, viewed 11 July 2019, https://www.cma.org.hk/uploads/ckfinder/files/Research/CommentandAnalysis/20160408123 454 評論與分析_經貿時事短評 2016 年第七期(總第 185 期)(2016 年 4 月 8 日).pdf The Government of HKSAR 2017, ‘Arrangement between the National Development and Reform Commission and the Government of the Hong Kong Special Administrative Region for Advancing Hong Kong’s Full Participation in and Contribution to the Belt and Road Initiative’, viewed 20 June 2019,

241

http://gia.info.gov.hk/general/201712/14/P2017121400551_274123_1_1513241987560 .pdf The Government of HKSAR 2018, ‘Mainland and Hong Kong Economic and Trade Co- operation Committee Convenes first meeting (with photos/video)’, viewed 20 June 2019, https://www.info.gov.hk/gia/general/201812/14/P2018121400407.htm Tofallis, C 2013, ‘An automatic-democratic approach to weight setting for the new human development index’, Journal of Population Economics, vol. 26, no. 4, pp.1325-1345. Viehs, M 2015, ‘Understanding ESG Investing: Fundamentals and Implementation’, CFA Institute Conference Proceedings Quarterly, vol. 32, no. 7, pp. 56-63. Wong, YH & Beasley, JE 1990, ‘Restricting weight flexibility in data envelopment analysis’, Journal of the Operational Research Society, vol. 41, no. 9, pp.829-835. World Commission on Environment and Development 1987, Our Common Future, viewed 10 August 2018, http://www.un-documents.net/our-common-future.pdf Yeung YMa, Shen JF & Zhang L 2004, Hong Kong and the Western Pearl River Delta: Cooperative Development from a Crossboundary Perspective Final Report: report to Policy Innovation and Co-ordination Office of Government of HKSAR, viewed 11 July 2019, https://www.pico.gov.hk/doc/en/research_reports/200405%20HK%20&%20The%20W estern%20Pearl%20River%20Delta.pdf

242

PART 3 Overseas research activities reports

243

Overseas Research Activity 1: Cambodia

1. Itinerary

The research team conducted a 7-day research trip to Cambodia in early 2019 to gain a grounded understanding of the perspectives of different stakeholders on the Belt and Road Initiative (BRI), Chinese investments and Hong Kong’s role. It also aims at identifying opportunities of Hong Kong business and professional services in enhancing co-development of Hong Kong and Cambodia. Through interviews, meetings, seminars and site visits, four groups of stakeholders (government, business and finance, special economic zones (SEZs) management and academia) were engaged. We visited ministries highly relevant to BRI-related policymaking and implementation and held meetings with ministerial-level or senior-ranking officials. Enterprises we interviewed have a diverse background in terms of country of origin (Cambodia, China and Hong Kong) and sectors (banking, manufacturing, garment, property developer etc.). All have had more than 10 years of experience in doing business in Cambodia and thus possess in-depth knowledge of and extensive business networks in Cambodia. In site visits to two SEZs (Phnom Penh and Sihanoukville) we met and discussed with the SEZ management and a number of enterprise managers. Altogether, the research team met a total of more than 30 key actors in 16 different meetings during the trip. The itinerary of the research trip is summarized in Table 1.

Table 1. Itinerary of Research Trip to Cambodia

Day Location Activities

1 Phnom Penh • Arrival • Meeting with a senior scholar from a top University in Cambodia

• Meeting with a major Hong Kong business association in Cambodia 2 Phnom Penh • Interview with Cambodia senior government officials (education) • Interview with Cambodia senior government officials (Special Economic Zone) • Interview with Cambodia senior government officials (environment) 3 Phnom Penh • Interview with senior management members of Phnom Penh branch of a Chinese commercial bank • Delivery of a seminar on Belt and Road Initiative (BRI) and the Greater Bay Area (GBA) and meeting with senior scholars at a top university in Cambodia

244

Day Location Activities

• Interview with Cambodia senior government officials (foreign affairs) • Meeting with scholars of a top university in Cambodia and legal experts 4 Phnom Penh • Delivery of seminar on BRI and GBA and meeting with senior scholars at another top university in Cambodia • Interview with a senior management member of a microfinance institute • Interview with Cambodia senior government officials (economy and finance) 5 Phnom Penh • Interview with a senior official and site visit at Phnom Penh SEZ (PPSEZ)

6 Sihanoukville • Interview with an owner of a Hong Kong factory in SSEZ • Interview with senior management members and site visit at SSEZ 7 Phnom Penh • Meeting with a representative of the major Hong Kong business association in Cambodia the research team met on Day 1 • Departure

The research team composes of academics from political science, engineering and finance and business elites. Before the trip we conducted desktop research, held internal research meetings and an interview with the Consulate General of Cambodia in Hong Kong to gain a basic understanding about BRI in Cambodia and draft a list of research questions. The Consulate General of Cambodia in Hong Kong, Hong Kong Trade Development Council (HKTDC), Hong Kong General Chamber of Commerce (HKGCC), Hong Kong Business Association in Cambodia (HKBAC) and University of Cambodia offered valuable assistance in connecting with interview respondents and lining up research activities conducted in Cambodia.

After the trip, follow-up meetings were held with a senior management member of a Hong Kong business with a history of investment (mainly in garment and property development) in Cambodia. Also, the research team arranged meetings with relevant HKSARG offices to exchange ideas on the development of policies to promote Hong Kong-Cambodia co- development, and to enhance participation of Hong Kong business and professional services in the new opportunities. Furthermore, the research team organized a public sharing session with students to share observations from the trip and further exchange ideas about BRI in Cambodia. The research team would like to thank Cambodia officials and academics for their kind support and advice in our follow-up research and report writing.

245

2. Country Profile

2.1 Basic overview

The Kingdom of Cambodia is located at the lower basin of Mekong River in Southeast Asia. Its capital, Phnom Penh, is about 185 km north-east to its southern port at Sihanoukville (the road distance is 226 km). Similar to the rest of mainland Southeast Asia, Cambodia's climate is dominated by monsoons, which are known as tropical wet and dry. Cambodia has a total area of 181,035 km2 of which 97.50% is land area. Population reached 16.3 million in 2018120, ranking 70th in the world. Cambodia also has a lower population density when compared to most of its neighbours, ranking 91st in the world. Cambodia has been characterized as ‘a young country’, with a median age of 26.4 years.121 As of 2013, 97.6% of the Cambodian population was Khmer. The rest are Cham (1.2%), Chinese (0.1%), Vietnamese (0.1%) and other (0.9%).122 Khmer is the official language while French and English are also widely used. Cambodia is a Buddhist country, accounting for 97.9% of the population, while only 1.1% are Muslims and 0.5% are Christians.123

Cambodia gained independence from its colonial master, France, in 1953. As a post-trauma society, Cambodia is marking its 40th Anniversary of Liberation Day in 2019 since the ouster of the Khmer Rouge regime (1975-79). The devastation under Khmer Rouge left long-lasting economic, social and psychological impacts in society. The decade thereafter was marked by a government backed by Vietnam and the Soviet Union but not recognized by United Nations. In 1991, the Paris Peace Agreement was signed and United Nations Transitional Authority in Cambodia (UNTAC) began monitoring Cambodia in 1992. Nowadays politics in Cambodia take place within the framework of the constitution of 1993, which prescribes a constitutional monarchy with a democratically elected parliament. The Prime Minister of Cambodia, an office held by Hun Sen since 1985, is the head of government, while the King of Cambodia is the head of state.

120 World Bank 2019, Population, total – Cambodia, viewed 10 May 2020, https://data.worldbank.org/indicator/SP.POP.TOTL?locations=KH 121 Central Intelligence Agency 2020, The World Factbook, viewed 25 May 2020, https://www.cia.gov/library/publications/the-world-factbook/fields/343.html 122 Central Intelligence Agency 2020, The World Factbook. 123 Central Intelligence Agency 2020, The World Factbook. 246

The economy has picked up since then. The GDP in Cambodia grows at an average of 7% between 1998 and 2018 (see Figure 1), the highest amongst the fast-growing ASEAN nations. Exports and tourism prospered. Garment industry, construction and real estate, and agriculture sectors are amongst the growth areas. Inflows of foreign direct investment are strong.124 Cambodia reached lower middle-income status in 2015 (formally reclassified by World Bank in 2016). In 2019, economic growth in Cambodia reached 7.1% in 2019, with an inflationary rate of around 1.9%.125

Figure 1. Real GDP and GDP Growth in Cambodia (2010 – 2018). 126 127 128

30.00 7.07% 7.31% 7.36% 7.14% 7.04% 7.03% 7.02% 7.50% 8.00% 5.96% 25.00 6.00% 20.00 15.00 4.00% 10.00 2.00% 5.00 - 0.00% 2010 2011 2012 2013 2014 2015 2016 2017 2018

Real GDP (Billion USD) GDP Annual Growth Rate (%)

Sources: World Bank 2020; Council for the Development of Cambodia 2019; Trading Economics 2019.

The GDP by sector of Cambodia throughout the past decade suggests that the services sector has remained the largest sector of Cambodia’s economy, while the industrial sector surpassed

124 Moody’s Analytics, Cambodia - Economic Indicators , viewed 26 May 2020, https://www.economy.com/cambodia/indicators#:~:text=Economic%20Overview,for%20the%20bulk%20of%2 0growth. 125 National Bank of Cambodia (NBC) 2020, Macroeconomic and Banking Sector Developments in 2019 and Outlook for 2020, viewed 28 May 2020, https://www.nbc.org.kh/download_files/other_reports/english/Macroeconomic_and_Banking_Sector_Developm ent_in_2018_and_Prospects_for_2019_ENG.pdf 126 World Bank 2020, Cambodia, viewed 10 May 2020, https://data.worldbank.org/country/cambodia 127 Council for the Development of Cambodia 2019, ECONOMIC TREND, viewed 25 May 2020, http://www.cambodiainvestment.gov.kh/why-invest-in-cambodia/investment-enviroment/economic-trend.html 128 Trading Economics 2019, Cambodia GDP Annual Growth Rate, viewed 25 May 2020, https://tradingeconomics.com/cambodia/gdp-growth-annual 247 the agricultural sector in 2015 as the second largest sector in Cambodia (see Figure 2). Albeit growing more slowly, the agricultural sector is considered as the foundation of Cambodia economy.

Figure 2. GDP by sector in Cambodia (2010 – 2018). 129

50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 2010 2011 2012 2013 2014 2015 2016 2017 2018

Agriculture Industry Services

Source: Statista 2019.

The Law on Investment was enacted in 1994 and the government learned from other countries to adopt an open-door policy. Since then, according to CDC, the total investment approved has reached 85.88 Billion USD as of 2019. Cambodia’s FDI inflows increased by 15% to US$3.1 billion in 2018 (see Figure 3). The growth concentrated in manufacturing and services, particularly finance and insurance (UNCTAD 2019, p.7). The National Bank of Cambodia (NBC) Outlook 2020 further reports that Cambodia attracts $3.588 billion in FDI in 2019, an increase of 11.7% over 2018, of which 43% comes from China, 11% from South Korea, 7%

129 Statista 2019, Cambodia: Share of economic sectors in the gross domestic product (GDP) from 2008 to 2018, viewed 25 May 2020, https://www.statista.com/statistics/438728/share-of-economic-sectors-in-the-gdp- in-cambodia/ 248 from Vietnam, 6% from Singapore and 6% from Japan. Furthermore, the NBC estimates that FDI is expected to grow by 10% to reach a total value of $3.951 billion in 2020.130

Figure 3. FDI inflow and growth in Cambodia (2013 – 2018). 131

35.82% 3500 15.24% 40.00% 3000 12.60% 30.00% 2500 4.02% 20.00% 2000 -1.62% -10.40% 10.00% 1500 0.00% 1000 500 -10.00% 0 -20.00% 2013 2014 2015 2016 2017 2018

FDI Inflow (million in USD) Growth

Source: World Bank 2019.

2.2 Relationship with China

Cambodia and China established a formal diplomatic relationship in 1958. Ties between the two countries have significantly strengthened since 1997 when leaders of the two countries reciprocate visits. Various agreements are signed to foster bilateral cooperation and aid, trade, investment and cultural exchange.

Apart from being one of Cambodia’s major donors, trading partners, rice buyers and tourist sources, China is also Cambodia’s top foreign investor (Chheang and Pheakdey 2019). For 7

130 National Bank of Cambodia (NBC) 2020, Macroeconomic and Banking Sector Developments in 2019 and Outlook for 2020. 131 World Bank 2019, Foreign direct investment, net inflows (BoP, current US$) – Cambodia, viewed 24 May 2020, https://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD?locations=KH 249 straight years since 2013, China has been the largest source of FDI into Cambodia, with its FDI continues to increase from year to year since BRI was announced (see Table 2). As of 2020, a free trade agreement with China is being negotiated, which expects to bring more FDI to Cambodia.

Table 2. China FDI to Cambodia (in million USD) (2014-2019).

Year Figures released by Cambodia and Figures released by China (source: other international Ministry of Commerce, PRC sources132,133,134135,136,137,138 Government)139

FDI Inflow FDI Stock FDI Inflow FDI Stock

2014 553.9 438.27 3,222.28

2015 544.32 419.68 3,675.86

132 United Nations Conference on Trade and Development 2015, ASEAN Investment Report 2015, viewed 28 May 2020, https://asean.org/storage/2016/09/ASEAN-Investment-report-2015.pdf 133 United Nations Conference on Trade and Development 2016, ASEAN Investment Report 2016, viewed 28 May 2020, https://asean.org/storage/2016/09/ASEAN-Investment-Report-2016.pdf 134 United Nations Conference on Trade and Development 2017, ASEAN Investment Report 2017, viewed 28 May 2020, https://asean.org/storage/2017/11/ASEAN-Investment-Report-2017.pdf, pp.30-31 135 United Nations Conference on Trade and Development 2018, ASEAN Investment Report 2018, viewed 28 May 2020, https://asean.org/storage/2018/11/ASEAN-Investment-Report-2018-for-Website.pdf 136 Hin P 2019, ‘China still No1 source of FDI’, The Phnom Penh Post, viewed 28 May 2020, https://www.phnompenhpost.com/business/china-still-no1-source-fdi) 137 United Nations Conference on Trade and Development 2019, ASEAN Investment Report 2019, viewed 29 May 2020, https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=2568 138 National Bank of Cambodia (NBC) 2020, Macroeconomic and Banking Sector Developments in 2019 and Outlook for 2020. 139 Ministry of Commerce, PRC Government 2019, Statistical Bulletin of China’s Outward Foreign Direct Investment 2018, viewed 29 May 2020, http://english.mofcom.gov.cn/article/newsrelease/significantnews/201909/20190902901191.shtml 250

2016 560.79 3,600 625.67 4,368.58

2017 628.36 6,300 744.24 5,448.73

2018 806.78 3,594 778.34 5,973.68

2019 1,548 N/A N/A

FDI from China is distributed into a wide range of key sectors in Cambodia, including infrastructure construction (including roads, seaports, airports and hydropower stations), real estate, special economic zones, manufacturing (especially garments), agriculture and agribusiness, mining and tourism.136 above The trend of FDI before and after 2014 has significantly reversed, with the largest influx of Chinese investment going to the construction sectors, as each construction project is worth hundreds of millions of dollars.140

Two prominent examples of BRI-related projects in Cambodia are the SSEZ, Cambodia’s largest special economic zone, and the planned expressway from Phnom Penh to Sihanoukville. They gained much support and attention from the top-level government officials of the two countries and were frequently highlighted by leaders of the two countries in public speeches and articles. SSEZ is a state-level Overseas Economic and Trade Cooperation Zone (OETCZ) jointly established by Chinese and Cambodian enterprises. Founded by Hongdou Group (a private enterprise from Jiangsu, China), it is one of the first MOFCOM approved state-level OETCZs, the first to sign a bilateral government agreement and the first to establish a bilateral sub-ministerial coordination mechanism. The four-lane USD $1.9 billion expressway connecting Phnom Penh and Sihanoukville is currently being built by the China Communications Construction Company (CCCC), a Chinese state-owned enterprise. Under a build-operate-transfer (BOT) arrangement with the government, CCCC will collect tolls through its subsidiary China Road and Bridge Corporation (CRBC) to recoup its investment (Sok 2019, para 5). In March 2020, one-fifth of the construction has reportedly been completed (Chhut 2020, para 1).

140 Hin P 2019, ‘China still No1 source of FDI’. 251

3. Discussion

Table 3 gives an overview of the interview respondents and Table 4 summarizes the major themes and sub-themes discussed in interviews.

Table 3. A list of the meetings with the 4 groups of stakeholders

Group Interview Organization Interviewee Location Code

262 Ministry of Education, Youth and Senior Phnom Penh Sport officials

263 The Council for the Development Senior Phnom Penh of Cambodia officials

263a Ministry of Environment Senior Phnom Penh officials

267 Ministry of Foreign Affairs and Senior Phnom Penh International Cooperation officials Government

269 Ministry of Economy and Senior Phnom Penh Finance officials

260 Consulate-General of Cambodia Senior Hong Kong in Hong Kong SAR officials

265 and 266 A major Chinese commercial Senior Phnom Penh bank in Cambodia management

268 A major microfinance institution Senior Phnom Penh

in Cambodia management

272 A Hong Kong factory in SSEZ Hong Kong Sihanoukville entrepreneur

277 A Hong Kong Business Hong Kong Phnom Penh

Business Finance & Association in Cambodia entrepreneurs

398 A Hong Kong major garment Hong Kong Hong Kong manufacturer in Cambodia entrepreneur

271 A Special Economic Zone in Senior Phnom Penh Phnom Penh management SEZs

252

Group Interview Organization Interviewee Location Code

273, 274 A Special Economic Zone in Senior Sihanoukville Sihanoukville management

277a A top University in Phnom Penh, Senior Phnom Penh Cambodia Scholars

277b A top University in Phnom Penh, Senior Phnom Penh

Cambodia Scholars

277c A top University in Phnom Penh, A Senior Phnom Penh Cambodia Scholar Academia

277d A top University in Phnom Penh, Senior Phnom Penh Cambodia Scholars and friends

Table 4. Major themes and sub-themes discussed in interviews.

Themes Sub-themes

1. Economic development in Open-door policy, investment facilitating Cambodia mechanisms and future development

2. Cambodian perspectives on BRI A. Nature: cooperation and connectivity

B. Challenges: uncertainty; lack of patience; mixed community receptions; geo-political power struggle

3. Assessment of Chinese investment A. Conducive to Cambodia development

B. Precede BRI

C. Project financing

D. Investment impacts on Cambodia

E. Comparison with Japanese investment

4. BRI risks towards Cambodia and A. Alignment of goals Cambodian strategies B. Public debt management

C. Social risks

253

D. Lack of internationalization

5. Roles of and Opportunities for A. Investment and project financing Hong Kong in BRI and Cambodia development B. Professional service C. Capacity building: education and vocational training

D. Promotion of Cambodia and BRI projects

3.1 Economic development in Cambodia

Cambodia adopts an open-door policy to facilitate investment and business (respondent 263). Cambodia is a relatively late comer, learning the open-door approach to development from neighbours in the region, such as Hong Kong and Singapore. Under this policy, Cambodia has undergone a rapid transformation from the central planning model towards a full-fledged market model. Furthermore, the government has put in place multiple mechanisms to facilitate foreign investors. For instance, the Government-Private Sector Forum in which the government works together with the private sector to address challenges faced by the investors (respondents 263, 269). For future development, the government has a strong focus on digital economy, and on developing technology such as FinTech.

3.2 Cambodian perspectives on BRI

BRI is perceived as mostly about multilateral cooperation and regional connectivity but there are considerable challenges ahead. The overall perception towards BRI is positive. For government respondents, BRI means matching Cambodia’s development needs with China’s excess capacity and an alternative source of development funding (respondent 267). The government has thus been enthusiastic about BRI for the opportunities it offered, including multilateral cooperation (respondents 263, 267, 269), new international market and business access (respondent 269), new SEZs (respondent 263) and opportunities under the Mekong- Lanchang Cooperation framework, which is deemed as a ‘sub-category’ of BRI (respondents 263, 269). For the private sector, the Chinese enterprises concur that BRI is important to Cambodia’s development. Loans provided by the Asian Development Bank (ADB) or International Financial Corporation (IFC) are very limited. Therefore, loans provided by

254

Chinese policy banks, major commercial banks and development funds are very important resources for this country. Also, BRI is seen to involve ‘projects that are win-win and drawing public support’ (‘共贏的、民心的工程’) (respondent 273, 274). The Hong Kong-based enterprise in Cambodia also highlighted the benefits of cooperation and connectivity. The Chinese government’s financial support in infrastructure is praised as offering significant help (respondent 398). Despite the criticisms in the Western-led international media to the BRI, a local academic shared that many local people are more concerned of the benefits the Chinese projects can bring to them, and their reception will be much improved if the Chinese investors distance themselves more from crime-related activities, which are becoming a new social problem in some parts of the country, e.g. Sihanoukville. Another respondent observed that there was a decreasing trend of criminal activities recently (see also the recent ban of online gambling in Cambodia in attempt to tackle cyber-crime) (Nikkei 2020, para1), but pointed out that the legal case of Phnom Penh casinos (NagaWorld 1 and 2) had hurt the image of Chinese investment in Cambodia.141

Nonetheless, BRI also faces various inherent challenges in its nature, design and implementation. Four major BRI challenges are identified. Firstly, there is a high level of uncertainty in its definition and scope because BRI is seen as considerably still in its initial stage of development (respondent 267). Timely and clear information on BRI is thus essential to advise policy and decisions of government and business. Secondly, the general public may not be patient enough to see the long-term benefits of large-scale infrastructure projects under BRI (respondent 267). More humbly sized, ‘soft’ projects under existing regional cooperation frameworks could be incorporated into the BRI framework and enjoy policies similar to those applicable to the large-scale projects. Thirdly, negative reception of BRI projects in local communities persist, caused by criticisms about the lack of transparency of BRI project financing (e.g. suspicious political / economic motivations, opaque bidding process, allegation of ‘debt trap’ etc.) and negative social impacts associated with BRI projects (e.g. land compensation disputes). More transparent, inclusive and effective communications would help strengthen positive public impression on BRI. Some stakeholders from the private sector believed that social and environmental assessment from lending institutes would help encourage the borrowing Chinese enterprises to pay more attention to their social and

141 This is owned by ethnic Chinese Malaysian businessman, listed in Hong Kong and visited mostly by Chinese gamblers. 255 environmental impacts and improve public perception (respondent 265, 266). Finally, the competition for world leadership between US and China has intensified, affecting the implementation of BRI itself as well as the diplomatic relationships between BRI-participating countries and US (and its alliance). The partial withdrawal of ‘EBA’ (‘Everything But Arms’) by EU and overt support for the biggest opposition party in Cambodia from US are seen as political pressure exerted onto Cambodia for its close relationship with China and BRI (respondent 265, 266).

3.3 Assessment of Chinese investment

There is a recent surge in influx of Chinese investments (almost doubled from 2014 to 2018 according to figures released by Ministry of Commerce in China, or even almost tripled from 2014 to 2019 according to Cambodia and other international sources, as illustrated in Table 2) and companies into Cambodia (respondent 262, 265, 266, 271). In general, the government respondents are more optimistic and welcoming towards Chinese investment while the private sector is more concerned with the negative, risk-creating impacts of the influx of Chinese investment.

The uniqueness and importance of Chinese investment are reflected from their large and syndicated loans (respondent 265, 266). Most syndicated loans are organized by Chinese banks. These commercial banks always work hand in hand with the policy banks. Furthermore, the same regulation stipulates that if the lending institute would like to lend out an amount exceeding 20% of its net worth, they can seek special approval from National Bank of Cambodia (NBC). NBC officers are usually supportive because they know only Chinese banks can support those big projects. If they don't issue the special approval, those big projects would not get the fund smoothly, resulting in project delay.

Mixed impacts were brought to Cambodia by Chinese investment under BRI. At least three positive impacts stand out and contribute to significant improvements in Cambodia. Firstly, Chinese investment contributes to the significant improvement of infrastructure development in Cambodia by bringing in much needed capital. For instance, SSEZ has operated for over a decade in Sihanoukville and substantially contributes to the local economic development. The total industrial value has increased by 4-fold in 10 years in Sihanoukville, reaching 350 Million USD in 2018 (respondent 273, 274). The average annual income per capita in Sihanoukville

256 has also reached USD 3,358, ranking it one of the top 5 provinces in Cambodia. Secondly, the Chinese investment also brings in technology and technical know-how, contributing to capacity building and economic transformation in Cambodia. For example, the training centre in SSEZ ‘Preah Sihanouk Cambodia-China Friendship Polytechnic Institute’ (‘中柬友誼理工學院’) was constructed by the Chinese government (via aid) and started operation in 2018. Investment in education helps Cambodia reduce reliance on low labour cost and thus transform its economy in the longer run. Finally, the corporate social responsibility (CSR) campaigns and activities by Chinese enterprises have reportedly improved the projects’ performance in social and environmental aspects. However, the recent influx of Chinese investments into Cambodia and the rapid growth resulted from it also brings adverse impacts (respondent 267, 265, 266, 271, 273, 274). Economically, the huge supply of new condominiums constructed by Chinese property developers is mainly (over 80%) bought by Chinese buyers, implying that the property market in Cambodia might risk creating a housing bubble (respondent 267, 265, 266). Cambodia lacks the absorbing capacity for such rapid investment in the property development sector. Locally, investments into Sihanoukville is seen as facilitating the rapid growth of gambling and criminal activities (respondent 267). Due to insufficient environmental and social awareness in industrial development and effective communications, public resentment might arise from displacement of local communities and families, uneven distribution of economic benefits, cultural conflicts, threats towards community safety and deterioration of living environment.

It is observed that quite a number of respondents, especially those in the private sector, had made interesting remarks about the difference of Chinese and Japanese investments in Cambodia while assessing the Chinese investment. Four stark contrasts are highlighted. Firstly, on the public image of striking a balance between profit-making and caring for society, Japanese investment seems to have done a better job than their Chinese counterparts. Both countries emphasize CSR and have done a lot. But impression-wise, Chinese enterprises are still observed to be paying more attention to profit-making than caring about the social and environmental impacts of their investment, while Japanese projects are deemed by the Cambodian in general as more caring to local culture and society (‘人文關懷’). (respondent 265, 266). Secondly, the Japanese investment shows a deeper commitment than their Chinese counterparts to local capacity building, as they are more involved in manpower training programmes of the Government and often guarantee to hire back the trainees in their Cambodia projects (respondent 263). Thirdly, the Japanese firms often show a stronger emphasis on soft 257 skills in their training. Finally, on management and business operation, it is observed that Japanese enterprises are more internationalized (in terms of ownership, management, operational standard and tenant composition) and business oriented.

In sum, Chinese investment is stronger in ‘quantity’ (in terms of size and nature of projects) while Japanese investment focuses more on ‘quality’. As shown in CDC’s Official Development Assistance (ODA) project database, of the 99 listed projects developed by China in Cambodia, 75 are infrastructure-related (such as building national roads, bridges, transmission grids and dams).142 Excluding those 9 projects in pipeline status (and thus do not have budget yet), the total budget of the 66 completed and on-going infrastructure projects is worth 4.34 Billion USD. On average, each project costs about 65.8 Million USD for. In contrast, of the 628 listed projects developed by Japan, only 148 are related to infrastructure. The percentage (i.e. 23.6%) is significantly lower than that of China. Also, these projects range from small-scale works (such as rehabilitation of wells and drainage system) to large-scale projects comparable to the Chinese projects (such as national road construction) (see Table 5 below). Most of the ODA projects (76%) developed by Japan are related to capacity building, governance reform, school and hospital construction and so on.

Table 5. Comparison between China and Japan in terms of ODA project nature and scale in Cambodia143

China Japan

Total number of ODA projects 99 628

Infrastructure-related projects (exclude 66 (66.7%) 148 (23.6%) pipeline status) (Percentage of total project)

Total budget of infrastructure-related 4.34 Billion USD 1.96 Billion USD projects

Average budget of each infrastructure- 65.8 Million USD 13.3 Million USD related project

Cost of project with the highest budget USD 259,397,500 USD 218,568,600

142 Council for the Development of Cambodia 2020, The Cambodia ODA Database, viewed 30 May 2020, http://odacambodia.com/projectlist/project_list_readonly.asp 143 Council for the Development of Cambodia 2020, The Cambodia ODA Database. 258

(Design and (SHV Port New Construction Project Terminal of Phnom Penh Ring Development Road No.3) Project)

Cost of project with the lowest budget USD 2,430,000 USD 3,822.3

(Rehabilitation (Project for Flood project of the Protection and National Road No.7 Drainage of Cambodia from Improvement in Kratie to Trapeang Municipality of Kriel) Phnom Penh)

Source: Council for the Development of Cambodia 2020.

3.4 BRI risks and Cambodian strategies

Table 6. A Summary of Risks and Mitigating Strategies

Risks Mitigating Strategies

1. Alignment of economic and social Rectangular Strategy Phase IV development priorities of Cambodia and complements well with the five China cooperation priorities set in BRI

2. Public debt management Prudent in borrowing and huge amount of feasibility studies

3. Social risks to local communities Compensation, impact investment and more effective communication

4. Market risk due to lack of More connections and consultations of internationalization of Chinese third-party professional services enterprises participating in BRI projects in Cambodia)

The first risk to consider is the alignment of economic and social development priorities of the two countries. The Cambodian government implements the ‘Rectangular Strategy’ (currently in Phase IV) to support and promote BRI while setting priority of development in its national economic planning. Specifically, the five cooperation priorities set in BRI, namely policy

259 coordination, facilities connectivity, unimpeded trade, financial integration, and people-people bond complement well with the national priorities in Rectangular Strategy Phase IV, which are human resource development, economic diversifications, private sector and job market development, and sustainable and inclusive development.

The second risk concerns public debt management. In response to the question how Cambodia plans to avoid a possible ‘debt trap’ out of the foreign investment, the government respondent (respondent 269) explained that the Cambodian government is highly aware of the importance of being prudent in borrowing, including stringent public debt management and detailed feasibility study. Borrowing is bounded by conservative public debt management strategies. Huge amount of feasibility studies involving years of investigation and thousand pages of technical details are required before the Ministry comes up with the master plan of a project and makes decisions.

The third risk is related to the social risks to local communities caused by neighbourhood displacement, land disputes, cultural conflicts, environmental degradation associated with BRI projects and influx of Chinese investment in Cambodia. The mitigation strategies discussed include compensation, impact investment and more effective communication.

Finally, Chinese enterprises participating in BRI projects in Cambodia faces market risk due to their lack of internationalization in their business, including ownership, management, standard of service, tenant composition (for SEZs) and talent acquisition. Apart from the project owner’s own level of determination and commitment to internationalize, the risk could also be possibly mitigated by more connections and consultations of third-party professional services, such as accounting, law, project consultancy and engineering, so as to learn through co-working with the professionals and progressively enhance their ownership diversity, corporate governance, quality of products and standards of services, and thereby internationalize and boost their competitiveness in the regional and global market.

4. Hong Kong Roles

4.1 Investment and project financing

The current activities in investment financing from Hong Kong may not be strong as one might expect but the potential opportunities are tremendous. The major reason for Hong Kong not 260 currently playing a significant role in project financing is that Cambodia, in the short term, is not yet prepared for using Hong Kong’s service due to its own capacity constraints in project planning and feasibility studies (respondent 269). Cambodia is currently more comfortable with dealing bilaterally with the Chinese and the French, as these partners will also manage all the project planning on their behalf. However, when Cambodia has got the talents (to design the project for international fund, for example) and resources, it will consider going to Hong Kong capital market to raise resources. Besides, it is suggested that some projects should consider using other resources in Hong Kong, for example, project design capacity. If the funding is not enough, Hong Kong capital market may serve as an additional source of funding. All in all, the Cambodia Government supports the idea that Hong Kong will become a future resource if not immediately. As for the time being, it is believed that maintaining dialogues and developing support in investment and capacity building are very important for the future. From the private sector perspective, banking service, such as issuing bank guarantee for project contractors, is one of the lucrative roles Hong Kong banks could play in Cambodia (respondent 265, 266).

As an international financial centre, Hong Kong is well-known for both investing in projects and handling project finance and thus the potential opportunity is huge. Firstly, one of the respondents from the Cambodian government (respondent 263a) pointed out that the Ministry of Environment would like to seek loans from financial institutions that could offer a good interest rate to finance projects that are environmentally sustainable and shape the future of Cambodia. Green bond (with borrowing ceiling of HK$100 billion) is issued by the HKSAR Government and USD interest rate in Hong Kong is considerably good in the global market. Therefore, Hong Kong may play a substantial role in facilitating green finance and sustainable development in Cambodia. Secondly, investment for digital economy transformation in Cambodia is an exciting sector for Hong Kong investors. As the Cambodian government has the long-term vision and plan to develop Industry 4.0, features of digital economy such as mobile payment and e-wallets are now becoming more popular in Cambodia. Hong Kong tech entrepreneurs and investors might have the financial and human resources to tap into the development opportunities. Thirdly, micro-finance in Cambodia is very successful and profitable – interest rate is kept at 18 percent (respondent 269). It has also gained new traction of development due to technology advancement – smartphone penetration and network coverage in rural area is promoted by the enhanced telecommunication infrastructure in Cambodia. FinTech reduces operation costs and increases profit margin. There could be room 261 of opportunities for venture capital funds from Hong Kong. All in all, Cambodia expects Hong Kong to play a larger role in supporting financial resources in the future. The Cambodian government is keen on seeking collaboration and developing synergy with other partners, including Hong Kong. ‘Cambodia is open for business’ (respondent 263).

4.2 Professional services

Hong Kong’s reputation in professional services is widely recognized in Cambodia and Cambodia strongly welcomes Hong Kong professional services (respondent 263). One of our respondents, a Hong Kong-trained, former ‘Big Four’ employee, has been able to run a successful accounting business in Cambodia for more than a decade, participating in auditing and accounting works for BRI infrastructure projects (respondent 277).

On the legal side, Cambodia takes a lot of interest in looking for dispute settlement. One of the respondents (respondent 267) suggested that if the dispute is done with a softer, more amicable dispute resolution mechanism rather than a very rigid and binding one (such as that of the WTO), it would be more suitable for the Asian and Cambodian markets. Hong Kong or Singapore both appears as credible sources of dispute resolution services to Cambodian business.

4.3 Capacity building: education, vocational training and corporate governance

For education, firstly, private education has experienced exponential growth in the last 10 years, as the Cambodian Prime Minister Hun Sen is keenly pushing it (respondent 277a). Cambodia welcomes investment in creating international schools, kindergartens, primary schools, secondary schools and even universities, ‘if they can demonstrate that they bring in something of quality’ (respondent 262). Also, Cambodia wishes to establish more collaborations in terms of higher education and research institutes (so far, there’s not very much; only those simpler schemes exist, such as scholarships) (respondent 262). Also, more investments in speedy and affordable telecommunication, such as internet technology of fibre, would serve the digital economy as well as the teachers (respondent 262). Furthermore, STEM education for Industry 4.0 has been a focus of development. New Generation School (NGS) requiring higher-than-average investment were established 5 years ago. More investments on NGS are welcome (respondent 262). Finally, teacher training is mainly conducted in Singapore 262

(respondent 262) but the idea of also sending teachers to train in Hong Kong plus Mainland China for wider exposure in future is welcome.

For vocational training, under Cambodian industrial development policy, the private sector is encouraged to play a greater role (respondent 263). Therefore, potentially, business communities in Hong Kong could explore opportunities of collaboration with the Ministry of Labour and Vocational Training in Cambodia with regard to offering professional training courses to Cambodian enterprises, such as soft skills. Furthermore, another government respondent (263a) reminded that in early 2019 about 50 young professionals were sent to visit Singapore under the Lee Kuan Yew Exchange Fellowship to study economic development and foreign relations across the public and private sectors. Hong Kong, South Korea and US were reported to be amongst the destinations for similar training in 2019 summer.

For corporate governance, partnering and cooperating with Hong Kong listed companies (as joint ventures, for example) offers Cambodian local business and entrepreneurs the opportunities to expose to modern business practices (respondent 267). Local companies learn to play by the rule and adapt to higher standards of tax compliance, corporate compliance, due diligence, proper board, independent director, tax audit and so on. A generational change is observed now where ‘most of the kids sent to study abroad are back… having access to good companies abroad, such as Hong Kong companies’ (respondent 267). Also, leveraging on their international business networks and experience, Hong Kong professional services may help enhance connectivity of Chinese enterprises (such as SEZ) joining BRI in Cambodia and thereby facilitate their internationalization and capacity building. Professional service, moreover, brings in additional impacts since professional practitioners are used to co-work closely with their clients. Clients’ corporate governance and business practices would be improved as a consequence.

In conclusion, Hong Kong possesses great advantages in facilitating human resources capacity building in Cambodia and thereby contribute to its economic sustainable development and participation in BRI. Hong Kong entrepreneurs and professional services are experienced in dealing with businesses in developing economies. Therefore, they tend to be more familiar with the ‘rule of the game’ in these emerging markets. Furthermore, they are more equipped with soft skills due to their international exposure and professional training. They have high cultural awareness and familiarity with the international standards and professional practices. Therefore, they are more capable of bringing in new ideas and standards, a positive social

263 impact to local communities in Cambodia. An example given by respondent 398 illustrated that Cambodian factory workers have reportedly become more hardworking and rule-observing after the enterprise adopts guidelines on how to respect Cambodian work culture and not to over-stress the workers. Productivity and competitiveness of the Hong Kong enterprise improve along with well-being of the workforce. This would provide valuable insights for newcomers of the market such as the Chinese enterprises who came to Cambodia under BRI and other new Hong Kong enterprises investing in Cambodia.

4.4 Projecting a new image to the world

From the Cambodian government perspective, it is hoped that through more in-depth exchanges and discussions, mutual understanding would be fostered. For example, it is hoped that through Hong Kong as a cosmopolitan city, Cambodia will project a richer and colourful external image to the world --- ‘the real Cambodian voice’ --- in place of the one dimensional traditional image of a ‘low-income (thus high-risk) society’ (respondent 263).

264

References

Chheang V and Pheakdey H 2019, ‘Cambodian Perspective on the Belt and Road Initiative’, in The National Institute for Defense Studies & Interbooks (ed.), NIDS ASEAN Workshop 2019 “China’s BRI and ASEAN”, The National Institute for Defense Studies, Tokyo, pp.5-23.

Chhut, B, 2020, ‘Billion-dollar highway to Sihanoukville 20pct ready’, Khmer Times, viewed 30 May 2020, https://www.khmertimeskh.com/697727/billion-dollar-highway-to- sihanoukville-20pct-ready/

Nikkei AR 2020, ‘In Cambodia’s boomtown, a gamble on Chinese money goes sour’, The Cambodia Daily, viewed 31 May 2020, https://english.cambodiadaily.com/business/in- cambodias-boomtown-a-gamble-on-chinese-money-goes-sour-158447/

Sok, K 2019, ‘The Belt and Road in Cambodia: Successes and Challenges’, The Diplomatic, viewed 30 May 2020, https://thediplomat.com/2019/04/the-belt-and-road-in-cambodia- successes-and-challenges/

UNCTAD 2019, ASEAN Investment Report 2019 FDI in Services: Focus on Health Care, viewed 30 May 2020, https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=2568

265

Overseas Research Activity 2: Vietnam

1. Itinerary

The research team conducted a 5-day research trip to Vietnam in mid 2019 to explore the local views on the Belt and Road Initiative (BRI) and the associated business development of Chinese and Hong Kong enterprises through interviews, seminar participation and on-site visits in Hanoi and Ho Chi Minh City (HCMC), the political and economic powerhouses of Vietnam respectively. Sharing the same focus on exploring the local views on BRI and the associated business development of Chinese and Hong Kong enterprises in Vietnam, the research team joined the events held by the Belt and Road Pioneer during the visit including a seminar for exchanging ideas on industry 4.0 and BRI in a university of Vietnam, discussion meeting on BRI with a research institute, and visits to technology parks and a Hong Kong-based transnational group in Vietnam. These events also engaged the research team with a couple of Hong Kong business elites who are interested in or have entered the Vietnam market. The research team interviewed a total of 32 respondents in 21 interviews and meetings on their views on BRI and related business development. The itinerary of the research trip is summarized in Table 1.

Table 1. Itinerary of Research Trip to Vietnam

Day Location Activities

1 HCMC • Arrival • Meeting with a senior management member of a Hong Kong exhibition company with overseas branches 2 HCMC • Visit of a start-up centre and meetings with senior management members and startups in a technology park focuses on technological entrepreneurship in a top university in Vietnam • Meeting with a senior management member of a Hong Kong accounting and consultancy firm • Site visit and meeting with senior management members of a Hong Kong based transnational group for seafood & foodstuff, real estate, financial services, technology, infrastructure, media, education and green technology • Delivery of a workshop entitled ‘Industry 4.0 Innovative Experience from Guangdong, Hong Kong & Macao’ at a top university in Vietnam 3 HCMC • Site visit and meeting with senior management members and an incubatee of an incubation centre for digital technologies application • Meeting with a senior management member of an international chain convenience store company in Vietnam

266

Day Location Activities

• Meeting with a senior management member of a delivery services company based in Shenzhen, Guangdong, and Hong Kong • Interview with representatives of a major Hong Kong business association in Vietnam 4 Hanoi • Attendance of a workshop conducted by a research institute in Vietnam and meeting with scholars • Interview with Vietnam senior government officials (industry and trade) • Interview with scholars of the research institute in Vietnam the research team met in the morning 5 Hanoi • Departure

Prior to the trip, preliminary background research was conducted, including desktop research on Vietnam-Hong Kong trade profile, a research meeting with the Consulate General of the Socialist Republic of Vietnam in Hong Kong, an interview with the senior management of the Hong Kong-based transnational group with Vietnam office and invitations to potential respondents in Vietnam.

After the visit, the research team continued Vietnam related research by organising a cross- disciplinary sharing section for delivering the preliminary research findings and discussing the role of Hong Kong particularly, and connecting with Vietnam officials and scholars for follow- up research and report writing.

2. Country Profile

2.1 Basic overview

Officially known as Socialist Republic of Vietnam, Vietnam is located in the centre of Southeast Asia and is bordered by China to the north, and Laos and Cambodia to the west. Its capital is Hanoi. Its climate can be divided a tropical and a temperate zone and characterized by strong monsoon influences. Its territory is roughly in a ‘S-shape’ with a total land area of 33123.6 km2 and the total population reached 96.2 million in 2019, 68% of which is in working

267 age.144 The median age estimated in 2020 is 32.5.145 The official language is Vietnamese while English, French, Chinese, Khmer and various highlander languages are also spoken. The majority of the population (86.32%) has no religion, while others are Catholicism (6.1%), Buddhism (4.79%), Haohoaism (1.02%) and Protestantism (1%).146

There were sporadic wars during the following three decades since the unification under the Communist Party of Vietnam (CPV) in 1975. During mid-1980s, CPV faced a major challenge in governance as the country fell into an economic crisis with 700% inflation rate. Learning from the failure of communist regimes and the Soviet Union, the CPV initiated Doi Moi aiming at creating a ‘socialist-oriented market economy’ by opening up to foreign investment and trade. After three decades of opening up and reform the country has moved into a new development phase as a lower middle-income country (Nguyen 2019). Currently, the political system in Vietnam is one-party socialist republic.

Vietnam’s economy continues to show robust growth after the Doi Moi regeneration. Vietnam has attained the middle-income country status since 2009. The GDP growth rate has maintained at around 6% since 2009 (Figure 1). Given the stabilized inflation rate at around 3.5%, the nominal GDP in 2018 was at 241,038.80 Million USD with a record-breaking growth of 7.08%, and above the government target of 6.7%.147

Figure 1. GDP Growth in Vietnam (2009 – 2018) 148

144 General Statistics Office of Viet Nam 2019, Statistical Yearbook of Vietnam 2018, viewed 30 May 2020, https://thongke.gov.vn/wp-content/uploads/2019/10/00.-Nien-giam-2018.pdf 145 United Nations 2019, World Population Prospects 2019, viewed 30 May 2020, https://population.un.org/wpp/Graphs/1_Demographic%20Profiles/Viet%20Nam.pdf 146 General Statistics Office of Viet Nam 2019, Statistical Yearbook of Vietnam 2018, 147 The ASEAN Secretariat & Jakarta 2019, ASEAN Statistical Yearbook 2019, viewed https://www.aseanstats.org/wp-content/uploads/2020/01/ASYB_2019.pdf 148 World Bank 2020, GDP (current US$) – Vietnam, viewed 20 May 2020, https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=VN 268

8.00% 7.10% 6.40% 6.70% 6.80% 7.00% 6.20% 6.00% 6.20% 5.40% 5.40% 6.00% 5.20% 5.00% 4.00% 3.00% 2.00% 1.00% GDP Growth rate (%) 0.00% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: World Bank 2020.

Figure 2 shows that in 2019 the services sector contributes the largest share of GDP, with 41.64%, followed by the industry and construction sector (34.49%) and the agriculture, forestry and fishery sector (13%). The services sector grows fastest at 10.31% year-on-year, followed closely by the industry and construction sector, at 9.75%, then the agriculture sector, at 4.46%.

Figure 2. Vietnam share of GDP at current price by sectors, 2019. 149

13.96%

41.64%

34.49%

Agriculture, Forestry and Fishing Industry and Construction Services

Source: General Statistic Office of Viet Nam 2019.

149 General Statistic Office of Viet Nam 2019, Gross Domestic Products at current prices, viewed 30 May 2020, http://www.gso.gov.vn/Modules/Doc_Download.aspx?DocID=25074 269

The inward FDI of Vietnam has increased for 8 consecutive years. In 2019, it reaches the peak at 38 Billion USD, as reported by the General Statistical Office of Vietnam (2019) (see Figure 3).

Figure 3. Vietnam FDI net inflow (Billion USD) (2010 – 2019). 150 151

40 38

20 15.5 14.1 15 11.8 12.6 8.9 9.2 10 8 7.43 8.368

0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Source: World Bank 2020; General Statistical Office of Vietnam 2019.

Table 2 below shows that Asian countries and regions are the major sources of Vietnam’s FDI inflow. In 2019, South Korea was the leading country for newly licensed FDI both in terms of project number and value. In terms of project number, Korea is followed by China, Japan and Hong Kong. In terms of project value of the newly licensed FDI, Korea is followed by Hong Kong, China and Singapore.

150 World Bank 2020, Foreign direct investment, net inflows (BoP, current US$) - Vietnam, viewed 20 May 2020, https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=VN 151 General Statistic Office of Viet Nam 2019, Socio-economic situation in 2019, viewed 27 May 2020, https://www.gso.gov.vn/default_en.aspx?tabid=622&ItemID=19463 270

Table 2. Licensed FDI projects by top 10 countries and region ranked by 2019 Licensed FDI (Million USD), 2019.152

Country and Region 2019 Licensed FDI (Million Number of Projects USD)

1. South Korea 3668.8 1137

2. Hong Kong SAR 2811.9 328

3. China 2373.4 683

4. Singapore 2100.9 296

5. Japan 1820.7 435

6. Taiwan 860.7 152

7. Thailand 562.3 46

8. Samoa 543.1 55

9. Virgin Islands (UK) 500.4 45

10. Netherlands 390.8 29

Source: General Statistical Office of Viet Nam 2019.

Out of 19 sectors receiving capital, manufacturing and processing came top with total capital of US$24.56 billion, accounting for 65 percent of total registered investment capital. This was followed by real estate at 3.88 Billion USD and then by retail and wholesale. Analysts suggested the latest wave of foreign investment has been mainly driven by the US-China trade war (Pritesh 2019).

The rise of wages in China, coupled with the recent trade war between the US and China, has led manufacturers in China to look for an alternative, driving a surge in GDP, trade and FDI in Vietnam. There were signs of Chinese manufacturing firms, including Hong Kong businessmen, to seek relocation to Vietnam. For example, manufacturing labour costs per hour in China are projected to reach US$6.5 in 2020, while these costs are about US$3 in Vietnam. Subsequent to the 2017 Free Trade Agreement between Hong Kong, China, and the

152 World Bank 2020, Foreign direct investment, net inflows (BoP, current US$) - Vietnam. 271

Association of Southeast Asian Nations (ASEAN), Hong Kong firms are eligible to access the Vietnamese market for goods, services, investments, economic and technical cooperation, and dispute settlement.

In sum, Vietnam’s economy is expected to maintain forceful growth driven by the increasing foreign direct investment. The government starts to prioritize FDI bringing in higher added value such as new technology and digital solution, tourism, technological agriculture. The government is also investing in training and capacity building of the local workforce to fit the requirement of foreign investors and future developmental needs.

2.2 Relationship with China

Sharing similar socialist and cultural backgrounds, China and Vietnam have established their diplomatic relations in 1950. China fought hand in hand with North Vietnam against US and the South Vietnam during the Vietnam War, which is followed by a prolonged border war from 1979 to 1990. There are ongoing territorial disputes over the South China Sea between the two (and other neighbouring nations). Efforts in improving their diplomatic and economic ties are nonetheless witnessed.

China has been increasing its investment steadily in Vietnam, as shown in Table 3. FDI from China moves up to the fourth in 2019 from the fifth in 2018. According to the Ministry of Foreign Affairs of the People’s Republic of China, the Chinese FDI stock in Vietnam reached 6.42 billion USD as of the end of September in 2019, with an increase of 817 million USD and a growth rate of 9%, compared with the same period of last year. By the end of 2017, there were 1846 valid Chinese investment projects in Vietnam, with a total contract value of 11.94 billion USD.

272

Table 3. Vietnam net FDI inflow and Chinese FDI to Vietnam (2010 – 2018).153 154

2010 2011 2012 2013 2014 2015 2016 2017 2018

FDI inflow of 8000 7430 8368 8900 9200 11800 12600 14100 15500 Vietnam (Million USD)

FDI from 305.13 189.19 349.43 480.5 332.89 560.17 1279.04 764.4 1150.83 China*

Percentage of 3.81% 2.55% 4.18% 5.40% 3.62% 4.75% 10.15% 5.42% 7.42% Chinese FDI

Sources: The General Statistical Office of Vietnam 2019; Ministry of Commerce of the People’s Republic of China 2019.

The BRI has been a major factor in the recent surge of Chinese FDI. During President Xi Jinping’s visit to Hanoi in November 2017, the two countries signed a Memorandum of Understanding (MOU) on promoting connection between the ‘Two Corridors, One Belt’ framework and the BRI. The ‘Two Corridors, One Belt’ (TCOB) framework was proposed by China in 2003 to promote bilateral economic cooperation.

Vietnam has been the destination of a good share of BRI investments. As reported in the Investment Project Information Database of the Ministry of Commerce of the People's Republic of China, there are 66 Chinese investment projects in Vietnam currently. Some projects, such as Long Jiang Industrial Park and Vietnam’s first urban railway Cat Linh-Ha Dong Line construction, are highlighted as ‘major BRI projects’ (Ministry of Commerce of the People’s Republic of China 2019).

153 World Bank 2020, Foreign direct investment, net inflows (BoP, current US$) – Vietnam. 154 Ministry of Commerce of the People’s Republic of China 2019, Outward Investment Project: Vietnam, fact sheet, viewed 28 May 2020, http://project.fdi.gov.cn/sinfo/s_1_0.html?q=field19%5E%u8D8A%u5357%3Bfield39%5E%u5BF9%u5916%u 6295%u8D44&r=&t=ichk%3D0&starget=1&style=1800000091-1-10000106 273

3. Discussion

Table 4 gives an overview of the interview respondents and Table 5 summarizes the major themes and sub-themes discussed in interviews.

Table 4. Respondents in Vietnam field research.

Group Interviewee Organization / Sector Interviewee Location code

302 Hong Kong exhibition company with Senior HCMC overseas branches Management

304a Hong Kong rental and exhibition Senior HCMC company for overseas properties Management

315 Property development and Senior HCMC investment company Management

market) 304 Hong Kong accounting and Senior HCMC consultancy firm Management

303 Hong Kong company for overseas Senior HCMC property development and Management

Hong Kong Investors (exploring Vietnam Vietnam Hong Kong Investors (exploring investment; Tourism

301a A Hong Kong based transnational Senior Hong Kong group for Management

(Hong Seafood & Foodstuff, Real Estate, Kong) Financial Services, Technology, 304d Infrastructure, Media, Education and Senior HCMC Green Technology Management 310 (Vietnam) HCMC 304e HCMC

316 An international chain convenience Senior HCMC stores in Vietnam Management

319a Delivery services company based in Senior HCMC Shenzhen, Guangdong, and Hong Management Kong

Hong Kong Investors (entered Vietnam market) Vietnam Hong Kong Investors (entered 318 Business association in Vietnam for Senior HCMC Hong Kong investors Management

274

Group Interviewee Organization / Sector Interviewee Location code

319 Intern HCMC

306 Start-up company for computer Senior HCMC programming service Management

308 Start-up for robots and machines Senior HCMC development Management

304b Start-up for programmed business Senior HCMC call solutions Management

up - 307 Start-up for technological farming Senior HCMC solution Management

305 Industrial Park focuses on Senior HCMC Local start Local technological entrepreneurship Management 311 HCMC

313 Incubation centre for digital Senior HCMC technologies application Management

319b Incubation centre for digital toys Incubatee HCMC development

317 Business association in Vietnam for Local Staff HCMC Hong Kong investors

314 A Hong Kong based transnational Local Staff HCMC

group for

Local Seafood & Foodstuff, Real Estate, Financial Services, Technology, Infrastructure, Media, Education and Green Technology

304c Hong Kong Education and Research Scholar HCMC Institute

304f Vietnam University Scholar HCMC

309 Vietnam Research Institute Scholar Hanoi

Academia 320 Vietnam Research Institute Scholar Hanoi

321 Hanoi

275

Group Interviewee Organization / Sector Interviewee Location code

321a Hanoi

321b Hanoi

321c Hanoi

312 Senior official of Vietnam Central Official Hanoi

government in the area of trade and industry official Government Government

Table 5. Interview themes

Themes Sub-Themes

1. Views on BRI • Benefits to Vietnam • Associated with risks

2. Driving Investment in • Personal networks Vietnam • Favourability of Vietnam’s investment environment • The Sino-US trade war 3. Features of Hong Kong • Entered Vietnam market long before BRI Investment • High cultural awareness • Capacity building for the locals • Importance of CSR • International business practice and favourable local impact • Investment challenges • Strong business orientation

3.1 Views on BRI

Vietnam is able to benefit, by and large, from the initiative given the perceived evolving nature of BRI, taken note by Vietnam academics researching on BRI and Vietnam-China relations. BRI provides a policy framework for the development of the diplomatic relations and economic cooperation with China (respondent 320, 321). More importantly, Vietnam’s economy could enjoy material gains under BRI through cooperation in technological transfer, infrastructure projects, and trade. From investors’ perspective, the investment and market environment would

276 become more attractive since the cost of sourcing suitable technology or transportation would decrease with cooperation (respondent 316). In particular, BRI may offer a new solution to bridge the voluminous investment gap of infrastructures on which further economic growth depend (respondent 312).

Despite the positive potentials, there are abundant worries over risks, from environmental concerns, substandard project quality, cost overruns, institutional malice like corruption to heightened geopolitical tension (respondent 321a, 312, 317). The delay and cost overrun of the railway project at Ho Chi Minh city is one example. Respondents also complained of the ignorance or lack of attention of Chinese investors on environmental protection compliance requirements, even though there had been clear policy or regulations. Corruption and integrity pose as a BRI risk as Chinese enterprises are seen to be accustomed to circumventing laws and prefer to cultivate ‘relations’ (guangxi) with the Vietnamese officials. ‘The practice of guanxi business, noncompliance of laws and resultant increase of corruption have impeded market efficiency and effectiveness of Vietnam and the public interest will be sacrificed’ (respondent 321a).

3.2 Driving Investments in Vietnam

Driving decisions to invest in Vietnam are considerations in three areas: (1) the personal network of the investors, (2) the favourable investment environment and, more recently, (3) the Sino-US Trade War.

Firstly, personal network in the current context refers to the reach to the supply of goods, services, and demand from the local partners of the investors. An active member of a Hong Kong business association in Vietnam (respondent 318) shared that his personal networks with local businessmen and government officials have been instrumental to his investment decision in the Vietnam property and hotel development sector. Other prospective investors from Hong Kong indicated that their connection with clients and business partners is a major factor underlining their interest in exploring the feasibility of expanding to Vietnam market (respondent 302, 304a).

Secondly, social and political stability is conducive for investment. The relative political stability since the end of civil war in Vietnam has encouraged more recent Hong Kong investments. The respondents from the convenient store and business association (318, 316)

277 shared that Hong Kong investors came to Vietnam as early as 1930s and 1960s. These investors moved out from mainland China due to the war with Japan and domestic insurgencies. Economic growth in recent years makes Vietnam an attractive market itself and a good option for investment. With the abundance of natural resources, the founder of a Hong Kong based transnational group decided to do business in Vietnam due to its promising economy with a young workforce, according to respondent 304d. Sharing the same view, the respondent from an international chain convenience stores in Vietnam (316) pointed out market and economy factors are major investment considerations. Specifically, the relative low set-up cost, competitive labour cost, young population, strong GDP growth, well-established trade agreements, increasing purchasing power, improving infrastructure, ongoing market reform by government, and low stock valuations facilitate the viable catch-up effect and high possibility of profit for investors. Consequently, these economic landscape makes Vietnam a preferred investment destination.

Lastly, labour and logistic costs in Mainland China have been escalating in recent years. With the tariffs announced by the US during the recent trade conflicts with China, business becomes vulnerable. As a result, respondents of Hong Kong investors and Vietnamese official (318, 316, 312) thought investors who had manufacturing establishments in China decided to shift their investment to Vietnam to avoid US tariffs. Semi-finished goods made in China are sent to Vietnam and goods will be exported with ‘made in Vietnam’ label to the US.

3.3 Features of Hong Kong Investment

Seven features of the inward investments from Hong Kong were discussed: (1) Hong Kong investors entered Vietnam market long before BRI; (2) there is a high cultural awareness; (3) capacity building for the locals is a common theme; (4) the importance of CSR; (5) international business practice and favourable local impact ; (6) investment challenges and (7) strong business orientation.

First, Hong Kong investment comes to the Vietnam market long before the BRI. The Hong Kong based transnational group (hereinafter the ‘Group’) has been in business in Vietnam for 50 years, and by 2019 one of the biggest seafood exporters in Vietnam (301a). Others (301a, 304d, 318, 316) came to invest more than a decade ago and activities span various industries from retail, agriculture, hotel, shipping, port infrastructure to delivery logistics.

278

Second, Hong Kong investors in Vietnam have a high awareness of local culture and sensitivity to local needs in the workplace. Respondent in convenient store business (316) shared that her convenient stores require all staff, regardless of origin, to use English as the only medium of communication in the workplace. To show appreciation to Vietnamese culture, the Group runs cultural programmes through its philanthropy organization. The Group made donations in the range of 1 million USD are made annually to education and art projects (301a).

Third, Hong Kong investors provide training opportunities for the local employees to support longer term development of staff and the business. Taking the staff (314) of the Hong Kong based transnational group (Group) as an example, she received a scholarship from the Group to pursue further degree study in Hong Kong. This corporate programme empowered her/his capability in the workplace and broadened her horizon. Respondent (316) shared that training in his retail business are tailored made to befit the needs of job roles and positions. Larger companies like the Group may do even more. For example, respondent 301a shared that the Group bridges Vietnamese young entrepreneurs with the Hong Kong Science and Technology Parks Corporation (HKSTP) to offer a training programme for start-up capacity building.

Fourth, CSR is an established feature in Hong Kong investment in Vietnam. The Hong Kong business association for years connected hundreds of Hong Kong investors in Vietnam to execute charitable activities (respondent 318). Respondent 310 shared that their firm once connected international social worker experts based in Vietnam to provide community services for the locals, and that the CSR factor will be ‘considered carefully when sourcing suppliers’.

Fifth, Hong Kong investors are international level players outperforming many other investors in compliance over environmental protection, labour rights, technology, CSR and innovative business or market concepts (312). In other words, Hong Kong investment is seen as favourably more capable of bringing benefits in corporate, social and environmental sustainability. For example, in the case of the convenience chain stores, public hygiene standards and shop ambiance are substantially improved under the Hong Kong investment projects (respondents 316, 318). Innovative features of Hong Kong investment have become the target of local emulation by other enterprises, as argued by the respondent (316).

Sixth, Hong Kong investors in Vietnam shared a number of challenges, including cultural differences, rising labour costs, compliance requirements and supply chain gaps. Cultural differences can create obstacles for business. Respondents (316, 310) observed different life practices and standards in food hygiene and safety. Others found communication difficulties 279 due to language, especially in services such as exhibition management (302). Adaptation and creative management are required, for example, through ‘trial and error’ methods to identify what befits local habits in choosing what types of food and beverage to be introduced to the local retail market (316). Regarding shortage of skilled labour, the surge of Chinese manufacturers to Vietnam has led to the increase in the demand of skilled labour. The wage level is pushed up and profit levels face a squeeze (318). A local economist (309) considers the shortage and slow development of skilled labour a reflection of the weakness in the local education which requires broader policies to address. For compliance requirements, investors are facing a tightening up of regulations on labour wages, environment protection and so on (316, 318). For instance, environmental disaster sparked public outcry and called for raising the legal standard and strengthening regulation on factories for effluents. Sustainability has since become a major principle governing investment approval decision (321). For supply chain gap and lack of business connections in Vietnam (316), many Hong Kong and Chinese investments resemble ‘lone ships’ because no upstream companies are supplying the raw materials or parts after moving into Vietnam. They have to substitute the original supply chain with stable and suitable factories or companies in Vietnam. However, such replacement is usually difficult to seek.

Finally, a notable feature of Hong Kong investment, especially from the perspective of Vietnam actors, is its differentiated status from Chinese investment, and in particular, its business orientation. Hong Kong projects are seen and assessed by Vietnam locals as commercial projects. A senior academic researching on B&R and Vietnam-China relations commented that the Vietnamese holds investment from Hong Kong and China in two separate cognitive categories, enabling a good insulation of Hong Kong investment projects from the political overtures around the Chinese state capital projects (321c). A senior member of the business association for Hong Kong investors (318) concurred with this observation.

4. Hong Kong Roles

There is a good level of business investment from Hong Kong in Vietnam, some dating back in the earlier years. There is also a trend of increasing interest in recent years, as part of the broader relocation plans of manufacturing activities from the higher-cost south China region. Hong Kong projects have acquired a good local reputation for their better alignment with international norms and modern management. Specifically, Hong Kong has the advantages of 280 playing the following roles in Vietnam:

Firstly, Hong Kong could serve as a business role model. As shared by a Vietnamese central official (312), the new market concepts, modern management practices, sensitivity to local culture and CSR espoused by Hong Kong business in Vietnam are welcome as beneficial to foster further market reform in Vietnam.

Secondly, Hong Kong business is considered to perform better in an instrumental role in raising labour productivity through training and technological transfer (rather than merely deploying the low-cost labour and raw materials) than most other foreign investors from Asia (309, 312). In particular, Hong Kong is seen as a helpful source to assist in Vietnam’s aspiration in digitalisation, which has been raised as a goal in Vietnam Industry 4.0 development strategy (312). Vietnam lags behind most of its neighbours, including China, Thailand, India, Malaysia and Singapore in technology readiness, and much of the technologies currently in use in FDI projects are dated (309). Technological innovation and incubation centres have mushroomed in local universities as part of the effort to catch up. This involves seeking collaborations with international universities including Hong Kong (313). Local innovators should seek more exchange of ideas through the transnational conferences, exhibitions and contests in Hong Kong. Hong Kong’s mature financing platforms should also be better leveraged to attract new high-value investments. The research team met a number of local start-ups during the 2019 visit and one has started R&D cooperation with Hong Kong start-ups in a small way (319b).

Finally, Hong Kong professional services could potentially play a larger role in development of BRI in Vietnam. The research team observes that Bank of China has been offering finance and banking services in Vietnam; however, the market currently relies largely on local service providers. The outreach by Hong Kong professional services sector is insufficient, despite the ongoing investment activities in manufacturing and a range of other fields (304). The research team also noticed that only two Hong Kong listed companies entered the LongJiang Industrial Park under the BRI. Despite the high hopes, and the fact that Hong Kong investment represents a considerable part of Vietnam’s FDI, Hong Kong’s participation in BRI projects has so far been barely noticeable (318).

281

References

Ministry of Commerce of the People’s Republic of China 2019, Outward Investment Project: Vietnam, fact sheet, viewed 28 May 2020, http://project.fdi.gov.cn/sinfo/s_1_0.html?q=field19%5E%u8D8A%u5357%3Bfield39 %5E%u5BF9%u5916%u6295%u8D44&r=&t=ichk%3D0&starget=1&style=18000000 91-1-10000106

Nguyen, HH 2019, ‘Liberalizing Vietnam: Between Political Reforms and Economic Development’, Italian Institute for International Studies, viewed 30 May 2020, https://www.ispionline.it/en/pubblicazione/liberalizing-vietnam-between-political- reforms-and-economic-development-24589

Pritesh, S 2019, ‘FDI in Vietnam – Where is the Investment Going?’, Vietnam Briefing, 7 June, viewed 27 May 2020, https://www.vietnam-briefing.com/news/fdi-in-vietnam- investment-by-sector.html/

282

Overseas Research Activity 3: Sri Lanka

1. Itinerary

The research team conducted two research trips to Sri Lanka in mid 2018 and late 2019 respectively to deepen the understanding of the multiple challenges in managing the Chinese Belt and Road Initiative (BRI) investment and identifying the opportunities for Hong Kong professional services in Sri Lanka. A total of 26 interviews with 40 stakeholders from Chinese central enterprises, private enterprises, Sri Lanka local enterprises, academia and government sector were conducted in Colombo and Hambantota, the venues of major B&R investments in the country. In addition, we have conducted interviews with key stakeholders in Hong Kong and Mainland China. The itineraries of the two overseas research trips are summarized in Table 1 and 2. Table 1. Itinerary of Research Trip to Sri Lanka 1 (2018). Day Location Activities 1 Colombo • Arrival • Interview with Sri Lanka senior government officials (port affairs) • Interview with advisor, professionals and senior managements of a Chinese central enterprise (port) in Sri Lanka Colombo 2 Colombo • Interview with Sri Lanka senior government officials (investment)

3 Hambantota • Interview with senior managements of a Chinese central enterprise (port) in Sri Lanka Hambantota • Departure

Table 2. Itinerary of Research Trip to Sri Lanka 2 (2019). Day Location Activities 1 Colombo • Late Arrival

2 Colombo • Meeting with a senior management member of a Hong Kong-based Chinese state-owned enterprise 3 Hambantota • Site visit and meeting with senior officials of a Chinese central enterprise (port) in Hambantota • Interview with Sri Lanka senior government officials (investment) • Site visit at Hambantota port 4 Hambantota • Interview with senior management members of a Chinese central and enterprise (port) in Hambantota Colombo • Meeting with senior management members of Sri Lanka branch of a Chinese central enterprise (energy) and a senior management member of a Chinese central enterprise (port) in Hambantota 5 Colombo • Site visit and interview with senior management members of a Chinese central enterprise (port) in Sri Lanka Colombo • Interview with senior management members of Sri Lanka branch of a

283 Day Location Activities Hong Kong-based telecom enterprise • Interview with senior researchers from an interdisciplinary research institute in Sri Lanka 6 Colombo • Interview with senior management members of Sri Lanka branch of a Chinese central enterprise (construction and property development) • Interview with senior management members of a Guangdong private enterprise (decoration) • Meeting with a senior government official of Sri Lanka Government 7 Colombo • Site visit and interview with senior management members of Sri Lanka branch of a Chinese central enterprise (construction and property development) • Interview with a senior partner and a legal professional of a law firm in Sri Lanka 8 Colombo • Interview with a senior management member of a chamber of commerce in Sri Lanka • Interview with a senior management member and scholar of a private university in Sri Lanka • Interview with a senior management member of a Hong Kong micro enterprise (domestic helper training) in Sri Lanka 9 Colombo • Departure

Pre-trip desktop research and internal research meetings were conducted before the preliminary fieldwork in 2018. The research team also conducted several interviews with the Hong Kong branch/headquarter of the Chinese central enterprises in Hong Kong to formulate further research questions for the second research trip. Our Hong Kong respondents provided assistance in approaching local contacts in Sri Lanka. After the trip, the research team has kept in touch with the interviewees and received assistance in fact checking and report writing. The team also conducted a follow-up interview with the Embassy in Beijing and helped establish connections between the Government of Sri Lanka and Hong Kong International Arbitration Centre to facilitate their collaboration.

2. Country Profile

2.1 Basic overview Officially known as ‘Democratic Socialist Republic of Sri Lanka’, Sri Lanka is a South Asian island country on the Indian Ocean. Its capital is Colombo. With distinct wet and dry seasons, its climate is tropical, and its annual average temperature is around 27°C.155 The area of Sri

155 Climate Data, Sri Lanka Climate, viewed 22 May 2020, https://en.climate-data.org/asia/sri-lanka-256/

284 Lanka is 65,610 km2 with the population about 22.9 million and the density is 349/km2; the country has a young population with median age of 33.7 years ranking 95th among 228 countries and its life expectancy reaches 75.94 years.156 157 The official languages in Sri Lanka are Sinhala, Tamil and English. In particular, English is widely used in the business circle as the working language and the law is written in English. Most of the population are Buddhist (70.2%) while other popular religions include Hinduism (12.6%), Islam (9.7%) and Christianity (7.4%).158 The country secured political independence from Britain in 1948 and transformed from parliamentary to presidential system in 1978, modelling after the practices of multi-partisan competition and checks-and-balances in the Western democratic system (Tam and Tse 2016, p.355). A subsequent 26-year civil war ended in 2009 with the defeat of the Liberation Tigers of Tamil Eelam. Since then there is an almost even divide of support in society for the two major political parties, the Sri Lanka People’s Front (SLPF) and United National Party (UNP) (Verite Research 2017, p.2). Votes from the minority religions hold the influence of the critical minority in elections. Sri Lanka has been an upper-middle-income country since 2008. Its GDP has reached 84 Billion USD while its GDP per capita is 3,741 USD.159 However, the economy in Sri Lanka has been facing a downturn since 2013. After the end of civil war in 2009 and a brief boom, real GDP growth dropped sharply from 9.1% in 2012 to 3.2% in 2018. Despite a brief recovery in 2014-15, growth continues to slack (Figure 1). The Global Competitiveness Report ranks Sri Lanka 84th among 141 countries surveyed in 2019 (World Economic Forum, 2019).

156 Central Intelligence Agency 2020, The World Factbook, viewed 19 June 2020, https://www.cia.gov/library/publications/the-world-factbook/geos/ce.html

157 Sri Lanka Department of Census and Statistics (SLDCS) 2019, Mid-year Population Estimates by Age Group and Sex, 2014 – 2019, viewed 20 May 2020, http://www.statistics.gov.lk/PopHouSat/VitalStatistics/MidYearPopulation/Mid- year%20population%20by%20age%20group.pdf 158 Sri Lanka Department of Census and Statistics (SLDCS) 2012, Census of Population and Housing, viewed 20 May 2020, http://www.statistics.gov.lk/PopHouSat/CPH2011/Pages/Activities/Reports/FinalReport/Population/Table%20A 4.pdf 159 Central Bank of Sri Lanka (CBSL) 2020, Annual Report 2019, viewed 28 May 2020, https://www.cbsl.gov.lk/en/publications/economic-and-financial-reports/annual-reports/annual-report-2018

285 Figure 1. Sri Lanka Real GDP annual growth Rate, 2005-2019.160 161

10 9.145 8.405 9 7.668 8.016 8 6.797 7 6.242 5.95 6 4.961 5.008 4.487 5 4 3.42 3.209 Percentage 3 2.3 3.539 2 3.396 1 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Sources: World Bank 2019; Central Bank of Sri Lanka 2020.

The GDP growth of Sri Lanka is largely in the service sector, which consistently contributes nearly 60% of the GDP as shown in Figure 2. The agricultural sector decreased slowly to below 10% in 2010 and stabilized. The industrial sector kept around 30% while experienced a moderate drop in recent years. After the civil war ended in 2009, the industrial sector took off but the distribution of the three sectors has remained largely the same.

Figure 2. Shares of GDP by Sectors, 2005-2019.162

160 World Bank 2019, GDP growth (annual %) - Sri Lanka, viewed 26 May 2020, https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=LK&view=chart 161 Central Bank of Sri Lanka (CBSL) 2020, Annual Report 2019. 162 Central Bank of Sri Lanka (CBSL) 2020, Annual Report 2019.

286 70 60 50 40 30 20 10 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Agriculture Industry Services

Source: Central Bank of Sri Lanka 2020.

Figure 3 shows an increasing trend in accumulated inward FDI in the past several decades. Accumulated inward FDI value reached 16,417 million USD in 2018, which is 2.68 times of 2010. Sri Lanka took 25 years to accumulate over 2000 million USD of FDI from 1977 to 2002, but only took five years to double the amount from 2002 to 2007. Mainland China, Hong Kong, India, Malaysia and the UK are the top five inward FDI sources during 2008-2017 (Figure 4).

Figure 3. Accumulated Inward FDI to Sri Lanka 1977-2020 (Mn USD).163 164

20000

15000

10000

5000

1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Sources: United Nations Economic and Social Commission for Asia and the Pacific (UN ESCAP) 2018; World Bank 2019.

Figure 4. Top 10 Investing Countries in Sri Lanka (Mn USD), accumulated 2008-2017.

163 United Nations Economic and Social Commission for Asia and the Pacific (UN ESCAP) 2018, Sri Lanka Changes and Developments of Foreign Direct Investment Policy 2017/2018, document presented at - Eighth Meeting of the Asia Pacific FDI Network, 25 – 26 September, Bangkok, Thailand, viewed 28 May 2020, https://www.unescap.org/events/eighth-meeting-asia-pacific-foreign-direct-investment-fdi-network 164 World Bank 2019, Foreign direct investment, net inflows (BoP, current US$) - Sri Lanka, viewed 26 May 2020, https://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD?locations=LK https://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD?locations=LK

287 USA 369 UAE 550 Singapore 585 Mauritius 599 Netherlands 808 UK 905 Malaysia 980 India 1077 Hong Kong 1344 China 1722 0 200 400 600 800 1000 1200 1400 1600 1800 2000

Source: Sri Lanka Board of Investment (SLBOI) (2017, p.8).

2.2 Relationship with China Sri Lanka and China have a long history of political friendship and connections. For more than 60 years since the diplomatic relations between the two countries was established in 1957, senior government officials and leaders of the two countries have frequently made exchange visits (Tam and Tse 2016, p.355). Chinese state capital has entered into Sri Lanka as development assistance for several decades. Since 1971, the Chinese government has participated in the construction and management of joint projects with the Government of Sri Lanka, including power station, port, airport, highways and water supply (Sri Lanka Department of External Resources [SLDER] 2015, p.4). More recently, there has been more direct investment and private sector participation from China. After the announcement of the Belt and Road Initiative (BRI), Chinese capital continues to flow in. By 2019, the cumulative investment value has doubled the amount in 2013. During the pre-BRI period (2006-2012), Chinese investment of 5.4 billion USD flowed into Sri Lanka. Between 2013-2019, 6.8 billion USD was invested (Wignaraja 2020, p.4). Figure 5 below shows the yearly investment and major projects over the years.

Figure 5. Value of Chinese Development Finance to Sri Lanka up to July 2019 (Mn USD).

288

Source: Extracted table from Wignaraja et al. (2020, p.4).

Most projects are financed by policy banks through loans with a fixed term, whilst Colombo International Containers Terminal (CICT) and Colombo Port City are FDI projects by the China Merchants Group, a large Chinese state-owned conglomerate with headquarters in Hong Kong and a history tracing back to the Qing Dynasty.165 Infrastructure development requires vast amount of capital but takes much longer to break even and return profits. Local government agencies (such as Sri Lanka Ports Authority) normally own the project, while the Chinese side provides the financing and executes the construction.

3. Discussion

Table 3 gives an overview of the interview respondents.

Table 3. Interviews in Hong Kong, Mainland China and Sri Lanka, 2018-2019.

165 China Merchants Group was established in 1872 and the first modern business enterprise in China. Within its 147 years of history, the Group has initiated the national shipping industry and many other modern economic fields. In 1978, CMG played its pioneering role in China's reform and opening-up by solely investing and developing the first industrial zone in China open to overseas investment, the Shekou Industrial Zone, predating the announcement of the Shenzhen Special Economic Zone of which it becomes a part soon after. In more recent years, as part of the ‘Go Global’ strategy, the Group has accelerated its pace of international development operating 68 ports in 27 countries and regions. (CMG 2020).

289 Respondent No. Organization Interviewee Location Categories 292 Chinese central enterprise Senior Management Hong Kong (port) in Hong Kong 200, 201, 202, 203, Chinese central enterprise Senior Management Hong Kong, 204, 340, 341, 342, (port) in Sri Lanka Colombo & 343, 346, 347 Hambantota Hambantota 348, 349 Sri Lanka branch of a Senior Management Colombo Chinese central enterprise (energy) 200, 350, 351 Chinese central enterprise Senior Management Colombo (port) in Sri Lanka Colombo 354, 355 Sri Lanka branch of a Senior Management Colombo Chinese central enterprise (construction) 357, 358, 359, 360 Sri Lank branch of a Senior Management Colombo Chinese central enterprise (construction and real estate) 356 Guangdong private Senior Management Colombo enterprise (decoration) 337 Hong Kong branch of a Senior Management Hong Kong central enterprise (construction) 352 Sri Lanka branch of a Senior Management Colombo Hong Kong-based telecom enterprise 366 A Hong Kong micro- Senior Management Colombo enterprise in Sri Lanka (domestic helper training) 367 An international law firm Senior legal Hong Kong in Singapore professional 361 A law firm in Sri Lanka Senior Partner Colombo 363 A branch of an Senior Management Colombo international chamber of commerce in Sri Lanka 353 A research institute, Sri Senior researcher Colombo Lanka 364, 365 A private university in Sri Scholar and Colombo Lanka university staff

290 Respondent No. Organization Interviewee Location Categories 199 The Government of Sri Senior officials Colombo Lanka (port affairs) 201a, 201b, 344, 345 The Government of Sri Senior officials Hambantota Lanka (investment) 398a The Government of Sri Senior officials Beijing Lanka (Embassy)

Table 4. Major Themes in Interviews Themes Sub-themes Case studies of two China Merchant Group [CMG] major SOEs • Colombo International Containers Terminal [CICT] • Hambantota International Port Group [HIPG] • Challenges and Efforts by CMG Ø Political and Legal Risks Ø Legal Compliance and Commercial Viability Ø Politicized decision-making in Hambantota Project Ø Local Resistance and Avoidance in Politics Ø Commercial Senses under State-guided Investment China Harbour Engineering Company [CHEC]

• Colombo Port City • Preparation of Sri Lanka-China Logistics and Industrial Zone, Hambantota • Challenges Ø Policy gaps hard to fill Ø Crisis- driven Changes Shared Features of • Centrally controlled large-scale infrastructure Chinese State • Avoidance in domestic politics Investments in Sri Lanka

Views on BRI and • ‘White elephant’ in BRI Hong Kong’s Role • Hong Kong’s professional services • Hong Kong’s experience in free port/transit trade • Comparison with Singapore

3.1 Economic Development and Gap in Governance Sri Lanka has experienced long periods of civil war and the aftermath planning and

291 redevelopment led to a development path relying on construction and debt financing. This has stimulated the GDP growth from 2009 to 2012, but afterwards the economy continues to slack. Our research finds that the Government of Sri Lanka has formulated multiple national development plans but failed to translate them into economic growth. There are different interpretations, however, as to what are the most significant problems leading to the lacklustre performance. Respondents from Sri Lanka mostly stressed the unsustainable financing as a major problem, which adds costs and risks to the investment (respondent 353, 363, 364, 365). The Chinese investors and operators, on the other hand, pointed to policy gaps and capacity issues in implementation, both on their part and in particular the host side (respondent 342, 348, 349, 351, 354, 356, 360, 366). A. The financing problem is closely related to the country’s long history of fiscal deficit, trade deficit, debt financing in national development and the continuous currency (Rupee) depreciation against US dollar. While there is a circulating suspicion that the Chinese infrastructural projects have led to the country’s heavy indebtedness, research has found that Sri Lanka’s external debt is widely shared by multiple lenders in the following descending order: 1) international financial markets (sovereign bonds), 2) multilateral lenders (World Bank, ADB), 3) China, 4) Japan, 5) other bilateral lenders (Wignaraja et al. 2020, p.12). Sri Lanka’s status of an ‘upper middle-income country’, since 2008, also adds to the problem ironically by making it more difficult to borrow soft or concessional loans. The country therefore is in constant search for a strategy to achieve sustainable investment which will create jobs and improve living standards at an affordable price. B. The policy gaps in implementation are embodied in two aspects. First, inefficient government execution failed to help the investors settle the business smoothly (respondent 348, 349, 366); second, Chinese actors expect strong government leadership to fix many problems such as updating regulations and policies, addressing local resistance and public engagements (respondent 342,350, 354, 356, 360). Thus, Chinese SOEs have to work closely with the local government who do not have capacity to do so, and which they are not accustomed to. Respondents (354, 355) told the research team that they have assisted in market promotion and comparative studies to advise the Sri Lankan government on port policies.

3.2 Major Challenges for Chinese State investments Chinese state capital participates in Sri Lanka’s infrastructure development since 1971 through grants, concessional loans, and assistance. With the launch of the Belt-Road Initiative (BRI), Chinese investment continues to grow.

292 A. Government-to-government negotiations in the BRI projects usually renders a politicized decision-making at the expense of rigorous scrutiny of project commercial or environmental viability. This have caused bitter local resistance in some cases. Projects have been postponed or scrapped after a change in government or policy. Yet there has been a higher level of awareness of risk assessment in project financing more recently. Nowadays, Chinese projects are increasingly adopting the Public-Private- Partnership [PPP] model with the Chinese side engaged in direct investment and operation of the project, rather than only engineering procurement construction [EPC]. B. Sovereign risk or political risk is still the biggest challenge identified by Chinese SOEs. It includes the diplomatic relations and domestic political battle among different parties (respondent 201, 204). A consistent and long-term project implementation is not guaranteed when an opposition party is elected. Another political factor is the balancing policy by the Government of Sri Lanka between the western developed countries, India and China. The respondents acknowledged that the BRI is often perceived as a political strategy of the Chinese Government by the Government of Sri Lanka and community at large, and they have thus sought to distance their projects from BRI but stress their commercial nature as a means of risk management. For example, the Chinese companies tend to avoid publicizing their involvements with the Government of Sri Lanka on project execution or related policy discussions, for instance the free trade port policy. This practice however leads to opaque information disclosure, which unintendedly deepens local suspicion on the Chinese investment. Chinese SOEs are learning to improve their public engagement and corporate social responsibility practices through public relations and philanthropy, yet they are still, by and large, adopting a knee-jerk, crisis-driven approach which can be short-lived. C. Another big challenge is legal. The senior manager respondent 201 points out that whilst Sri Lankan partners attach great importance to due legal process, the country does not have a well-established legal system. In response, Chinese SOEs make good use of professional services including legal, accounting and management consultancy sectors. In the case of CMG, legal compliance is ensured through open international bidding and professional support by top-tier legal consulting agencies.

3.3 Respondents’ Assessment of BRI In general, both Chinese and Sri Lankan respondents think positively on the future of Belt and Road. Yet, Sri Lankan respondents in business and academic sectors reserve doubts in viability of the large-scale but hard-to-commercialize ‘white elephant’ projects (respondent 353, 361 and 362). It is concerned that these projects could not significantly elevate the living standard 293 but put Sri Lankan people in huge external debt. In contrast, Chinese SOEs tend to show more optimism on the prospect of the projects. They generally take a long-term vision, expect continuous development stage by stage, and put in hard-working efforts and patience in achieving their goals. Their complaints are more directed to the constraints in the local environment of the host country, for instance the lack of popular support, ‘unfair’ critiques from international media, uncertainties in the local political environment and inefficiency of the local bureaucracy.

4. Hong Kong’s Role

4.1 Project financing and investment Hong Kong companies have a high potential to continuously tap into the vast investment opportunities in Sri Lanka. Hong Kong ranks second amongst all countries/regions in terms of total cumulative investment to Sri Lanka from 2008 to 2017, after China and before India (see Figure 4 above). On a year-on-year count, Hong Kong is also among leading investors, ranking the first in 2015 and the second in 2016 and 2017 (Table 5). Investments mainly go to industries such as telecommunication, textile manufacturing, and tourism, with representative investors such as Hutchison Telecommunication, AVIC International and Shangri-La Hotel. Private capital is attracted to Sri Lanka by its lower labour costs and easy access to markets in Southeast Asia, EU and US under trade treaties. It should be noted that private capital from Mainland China investing in Sri Lanka mostly comes through Hong Kong and is counted as Hong Kong investment as well (Bhatia et al, 2016).

Table 5 Hong Kong’s Ranking of Investment in Sri Lanka from 2015 to 2017 (US$ Million). Ranking 2015 2016 2017 1st Hong Kong (188.01) Netherland (133.32) China (628) 2nd China (150.78) Hong Kong (119.88) Hong Kong (296) 3rd Mauritius (139.21) India (112.13) India (174) 4th Netherland (90.16) Malaysia (88.38) Malaysia (88) 5th India (67.84) China (52.81) Singapore (81)

Source: Sri Lanka Board of Investment 2015; 2016; 2017.

Hong Kong could also play a role in infrastructure development apart from private direct investments. As a major financial hub, Hong Kong has also provided development assistance

294 financing to Sri Lanka. Hongkong and Shanghai Banking Corporation Limited (HSBC), for instance, provided a loan of 80 million USD to help Sri Lanka implement Upcountry Line Operations in Sri Lanka Railways Project built by a Chinese construction contractor, Dongfang Electric; another loan of 72 million USD was negotiated to finance the project of Upgrading Health Facilities in 13 selected hospitals in Sri Lanka (SLDER 2018, p.17).

4.2 Professional Services: Professionalism and Commercialization

Hong Kong is an important platform for capitals to ‘go global’, because of its well-regarded professional services, professional management and the position as a global financial centre. Chinese state capital is financed in a unique way, however, where government-level negotiation guides the financing model. This has drawn much international attention to the financing sustainability issue of Chinese Belt and Road investments. The research team found that Chinese state investments leverage on Hong Kong as a brand to ‘go global’ as an internationalized and professional commercial operator. The two cases of Chinese SOEs either has headquarters in Hong Kong (CMG) or has a Hong Kong-based branch (CHEC) that contributes significantly to the ‘go global’ initiatives of the group. Specifically, Hong Kong’s brand has the following roles: A. To depoliticize the investment and strengthen commercial viability. CMG brands itself as a Hong Kong listed company which represents a professional and internationalized image. This branding is widely accepted and respected by its Sri Lankan partners and community at large, and thus contributes to its local operation (respondent 201). Hong Kong enables them to ‘optimize state capital’. More importantly, CMG also proves its strength in commercial operation with fast-growing container business in Colombo and a well improved turnover in Hambantota. Its business planning and execution measures reflect its rich experience in port management and a global vision. B. To assess and manage investment risks in overseas market through Hong Kong professional services. Hong Kong is widely recognized as being strong in providing financial services to international clients. Hong Kong is also a very important channel to support investments with risk assessment and management, rendering it a preferable platform for Chinese state capital to ‘go global’ and meet international market standards. There is a market for Hong Kong services in the areas of risk assessment, CSR engagement, professional consultancy and credit rating services.

C. To apply internationalized management and localization strategy. Hong Kong’s companies have advantages in internationalized management style that could quickly

295 adapt to local markets. Respondents (352) from a Sri Lankan telecommunication enterprise owned by a Hong Kong-based global conglomerate shared their localization strategy that 99 percent of their employees including the CEO are locals. Local senior managers are sent to branches in different countries to learn and develop local business before being sent back to Sri Lanka. Hong Kong companies, especially those with global branches and networks, have the potential to lead the emerging market in Sri Lanka.

4.3 Capacity Building: Free Port, Financial Centre and International Arbitration Centre Free Port Respondents acknowledged that Hong Kong is a role model of free port policies and transit trade, which is also the planning for Hambantota Port. Respondent 351 said, ‘the free port is right in sight of us…Sri Lanka should learn from Hong Kong.’ Hong Kong actors could publicize themselves, share their knowledge and look for business opportunities arising in a newly emerged market, as Sri Lanka is highlighting its focus on FDI and policy for ‘free port’. Currently, the work is slowly in progress as of our second field trip in October 2019. Chinese SOEs has tried to facilitate the policy updating by providing well-rounded report study of free ports across the world for their reference.

Financial Centre Chinese enterprises are already making use of Hong Kong financial services to support their business operation and compliance. Hong Kong financial actors could leverage on the current business and establish local branches in Sri Lanka to better tap the potentials in the South Asian market. Sri Lanka is working on establishing the Colombo Port City as a special economic zone and aspires to become a South Asian financial centre in collaboration with CHEC. Government of Sri Lanka aims to allow free flow of capital, human resources and foreign investments within the port city. Major target would be offshore finance to service the local market and South Asia.

International Arbitration Centre Hong Kong’s legal sectors have the potential to help Sri Lanka build capacity in establishing an international arbitration centre, which is planned within Colombo Port City to settle disputes among foreign investors. This is because of the rich experience, existing framework and common law system that Hong Kong possesses (respondent 361). It is suggested that a better approach is to affiliate the port city arbitration centre with Hong Kong, Singapore or London

296 and set up a branch in Sri Lanka. The government of Sri Lanka does not have adequate capacity to design and execute the legal framework on their own. The updated draft for a new legal framework has been submitted to the cabinet waiting for approval, which is assisted by Chinese operator as well as international consultants. The port city’s new legal framework would need amendment to the constitution, which slows down the process. The research team has facilitated the connection between Hong Kong International Arbitration Centre and the Government of Sri Lanka in a post-trip follow up. It is suggested that Hong Kong Government could do more promotion and connection work to further reinforce the ‘Hong Kong brand’ among international community. Moreover, the Chinese SOE respondents also shared that Hong Kong legal practitioners are generally well regarded and should tap more the business opportunities from Mainland. However, Hong Kong’s legal sector is expected to move more proactively. Respondents (360) from Chinese enterprises stated that currently they would not prioritize Hong Kong for legal services, as they need localized legal services and thus local firms would be more preferable. Interestingly, Singapore has been chosen as the preferred site of arbitration over China, the research team learned, despite that the investment has been routed through Hong Kong (respondent 292). This also implies that the global market exists, and Hong Kong legal practitioners have a variety of business opportunities to take, but more promotion and proactive efforts, by the professional firms as well as HKSARG, are necessary to turn potentials into business.

297 References

Bhatia, R, Kulkarni, K, Lee L & Gayakwad, S 2016, Chinese investments in Sri Lanka, Gateway House: Indian Council on Global Relations, viewed 26 May 2020, https://www.gatewayhouse.in/chinese-investments-sri-lanka-2/

Sri Lanka Board of Investment (SLBOI) 2015, BOI Sri Lanka Annual Report 2015, Government Printer, Colombo.

Sri Lanka Board of Investment (SLBOI) 2016, BOI Sri Lanka Annual Report 2016, Government Printer, Colombo.

Sri Lanka Board of Investment (SLBOI) 2017, BOI Sri Lanka Annual Report 2017, Government Printer, Colombo.

Sri Lanka Department of External Resources (SLDER) 2015, China Sri Lanka Relations in Infrastructure Development, viewed 28 May 2020, http://www.erd.gov.lk/index.php?option=com_content&view=article&id=221&Itemid= 370&lang=en

Sri Lanka Department of External Resources (SLDER) 2018, Performance Report 2018, viewed 29 May 2020, https://www.parliament.lk/uploads/documents/paperspresented/performance-report- department-of-external-resources-2018.pdf

Tam NH & Tse JH 2016, 香港如何「帶」「路」？(How Can Hong Kong Lead the Way?) 中華書局（香港）有限公司, Hong Kong. Verite Research 2017, Mapping Sri Lanka’s Political Parties: Actors and Evolutions, viewed 29 May 2020, https://www.veriteresearch.org/wp- content/uploads/2018/06/Mapping_Sri_Lanka_s_Political_Parties_Actors_and_Evoluti on.pdf

Wignaraja G, Panditaratne D, Kannangara P & Hundlani D 2020, Chinese Investment and the BRI in Sri Lanka, Chatham House Asia-Pacific Programme, viewed 27 May 2020, https://www.chathamhouse.org/publication/chinese-investment-and-bri-sri-lanka

World Economic Forum 2019, The Global Competitiveness Report 2019 viewed 11 May 2020, http://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2019.pdf

298 Overseas Research Activity 4: Myanmar

1. Itinerary The research team conducted an 8-day research trip to Myanmar in late 2019 to gain a deeper understanding about Myanmar and discuss the development of the Belt and Road Initiative (BRI) with over 30 stakeholders, including the Myanmar government departments and units, Chinese Belt and Road Initiative (BRI) players, Hong Kong enterprises, financial institutions, and academia in Yangon and Naypyidaw, the country’s economic and political centres respectively. The itinerary of the research trip is summarized in Table 1.

Table 1. Itinerary of Research Trip to Myanmar Day Location Activities 1 Yangon • Arrival

2 Yangon • Interview with senior management members of Myanmar branch of a Chinese central enterprise (construction) • Interview with senior management members and scholars of a university in Myanmar • Interview with Hong Kong staffs of a Hong Kong enterprise (real estate) 3 Yangon • Interview with senior management members of Myanmar branch of a foreign financial institute • Interview with Myanmar senior government officials (investment) • Interview with Myanmar senior management members and scholars of a university in Myanmar 4 Naypyidaw • Interview with Myanmar senior government officials (commerce) • Field observation of culture and religion in Myanmar 5 Naypyidaw • Interview with Myanmar senior government officials (education) • Field observation of old town and urban development in Naypyidaw 6 Naypyidaw • Interview with Myanmar senior government officials (foreign affairs) • Interview with Myanmar senior government officials (planning and finance) • Field observation of local economy of Naypyidaw 7 Yangon • Interview with senior management members and researchers of a Myanmar think tank and research institute (international relations) • Interview with a senior management member and academic of a special economic zone in Myanmar • Field observation in Thilawa Special Economic Zone 8 Yangon • Interview with a senior management member of Myanmar branch of a Chinese central enterprise (construction) the team met in Day 2 • Field observation of historical and urban development of Yangon • Departure

Before the research trip commenced, preparatory work such as desktop research on Myanmar’s country profile and engagements with potential interviewees in Myanmar were conducted. As explained in later section, Mainland China and Hong Kong are two significant sources of

299 investment in Myanmar. Chinese investment is led by state-owned enterprises and distributed mainly in infrastructure, energy and extraction industry sectors. The research team conducted interviews with senior management members of a construction central enterprise in Hong Kong for several times to gain a comprehensive understanding about its business activities in Myanmar. The central enterprise is a major player in project investment and construction in Myanmar. Hong Kong enterprises are dispersed in Myanmar and distributed widely in various industries like manufacturing, infrastructure and hospitality. The research team connected with Hong Kong-invested enterprises in a seminar which was attended by Hong Kong investors and Myanmar government representatives. One of them is the real estate enterprise that the team visited in trip. As Myanmar has gradually reopened financial market to foreign financial institutes to provide services for foreign investors, the research team interviewed senior management members of a foreign bank that is very familiar with the investment environment and economic development of Myanmar in the past 10 years. Thanks to the generous support from the Consulate General of Myanmar in Hong Kong, the research team also visited different departments and units of Myanmar government to have a comprehensive understanding of the government’s agenda, concerns and challenges. We also discussed with local academics on the domestic and international political situation that Myanmar are faced with and analyze the challenges to foreign investment. The research team keeps in touch with Myanmar officials and academics and benefited from their support in follow-up research and report writing.

2. Country Profile

2.1 Basic overview Officially named Republic of the Union of Myanmar (and popularly known as Burma in the past), Myanmar is the largest country in Mainland Southeast Asia with a size of 676,578 km2. Located in the junction of South Asia, Southeast Asia and China, Myanmar shares a 2,200 km long border with China. Since 2006, its capital has moved from the coastal Yangon to Nay Pyi Taw in mainland. Dominated by the southwest monsoon, its climate is subtropical/tropical. Myanmar has a population of 54 million, and its population density is estimated to be 80/km2 in 2019.166 The average life expectancy is 66.61 years by 2016, and the median age is 28.2

166 Population Division of the United Nations 2018, World Urbanization Prospects: The 2018 Revision, viewed 28 May 2020, https://population.un.org/wup/DataQuery/

300 years. 167 168 The official language is Burmese but it is only spoken by two-third of the population – the remaining one-third are categorized into 6 ethnic minority / indigenous languages. Myanmar is a multi-ethnic country, with 135 ethnic groups. The majority is Bamar, taking up 68% of the population, following which are Shan (10%), Karen (7%), Rakhine (3.5%), Han-Chinese (3%), Mon (2%), Indian (2%), Kachin (1.5%) and others. 169 Since Myanmar gained independence in 1948, Rohingya people have not been acknowledged as Myanmar citizens but illegal immigrants, with negative impacts on their access to health services, education and employment. Meanwhile, there is a sentiment of resistance to the domination of the Bamar culture in many minority groups. Religion in Myanmar is spread across Buddhism with 87.9%, Christianity 6.2%, Muslim 4.3%, Animism 0.8%, Hinduism 0.5%, others 0.2%, and none 0.1% of the population.170 Myanmar became an independent state in 1948 with multi-party elections held for its Chamber of Deputies in 1951–1952, 1956 and 1960. Following a coup d'état in 1962, the Burma Socialist Programme Party formed the government. The country was sanctioned by the major Western countries in the 1990s. The military junta had developed an extensive collaboration with the Chinese government in these years. With the democratic transition commencing in 2011, the Western nations gradually removed the sanctions. The government further eased its control on media and introduced a series of open-door policies and economic reforms. In the 2015 general election, the National League for Democracy (NLD) led by Aung San Suu Kyi defeated USDP to win an absolute majority of seats in both chambers of the national parliament. The military retains its great influence in national politics and economy as of today, as it holds the power to appoint 25% of legislators and controls the major industrial corporations. 171 The NLD government also relaunched negotiations on the peace process with the ethnic armed groups (EAOs), albeit the impact has been limited. With the economic liberalization since 2011, the Myanmar economy has been developing at high speed, with annual GDP growth rates ranging from 5.6% to 8.4% between 2011 and 2018

167 World Bank 2020, World Development Indicators, http://datatopics.worldbank.org/world-development- indicators/ 168 Central Intelligence Agency 2018, The World Fact Book, viewed 28 May 2020, https://www.cia.gov/library/publications/resources/the-world-factbook/fields/343rank.html 169 Myanmar Statistical Information Service 2020, Statistical Year Book 2018, viewed 28 May 2020, http://www.mmsis.gov.mm/sub_menu/statistics/fileDb.jsp 170 Myanmar Statistical Information Service 2020, Statistical Year Book 2018. 171 In 1990s, the two major conglomerates of Myanmar military, the Union of Myanmar Economic Holdings Limited and Myanmar Economic Corporation, were established to generate profits from light industry and heavy industry respectively. They have the majority stakeholder position in all of the major industrial corporations, including gems sector, banking, tourism, real estate, transportation, and metals.

301 (Table 2). GDP per capita remains low, ranking 150th place out of 180 countries in 2018.172 Table 2. Real GDP, GDP Per Capita, and GDP Growth Rate of Myanmar (2011 – 2018).173 Year 2011 2012 2013 2014 2015 2016 2017 2018 Real GDP 59.97 59.938 60.27 65.446 59.687 63.256 66.719 71.215 (Billion USD) 7 GDP per 1,176. 1,165. 1,162. 1,251. 1,133. 1,192. 1,249. 1,325. capita 242 794 331 821 003 495 829 953 (current USD) GDP Annual 5.591 7.333 8.426 7.991 6.993 5.862 6.759 6.2 Growth Rate (%)

Source: World Bank 2020.

The share of agriculture decreases from 46.7% in the fiscal year of 2005-06 to 23.3% in 2017- 18, while that of industry goes up (Table 3). Employment in agriculture (share of total employment) in Myanmar was reported at 49.69% in 2019 and employment in industry and in service accounted for 16.05% and 34.26% respectively.174 Table 3. Percentage Shares of Gross Domestic Product at Current Prices by Sector of Activity.175 Sectors 2005- 2010- 2013- 2014- 2015- 2016- 2017- 2006 2011 2014 2015 2016 2017 2018

Agriculture 46.7 36.8 29.5 27.8 26.8 25.5 23.3 (%) Industry (%) 17.5 26.5 32.4 34.5 34.5 35.0 36.3 Services (%) 35.8 36.7 38.1 37.7 38.7 39.5 40.4

Source: Myanmar Statistical Information Service 2020.

Foreign direct investment (FDI) of permitted enterprises reaches 5.72 billion USD in year 2017-18 and cumulates to 76.03 billion. The actual inflow from 1988-2017 is 19.940 billion USD. No more than a quarter of the approved investment has been realized, partly due to a lag between the approval and the completion of the investment. China, Singapore, and Thailand

172 World Bank 2020, World Development Indicators. 173 World Bank 2020, World Development Indicators. 174 International Labour Organization 2019, ILOSTAT database, viewed 28 May 2020, https://ilostat.ilo.org/ 175 Myanmar Statistical Information Service 2020, Statistical Year Book 2018.

302 are major investors. China is one of the largest sources of FDI in Myanmar. According to Directorate of Investment and Company Administration (DICA), as of April 30, 2020, the cumulative total of permitted FDI from China is 21.28 billion USD, taking up 25.00%, while FDI from Singapore is 23.01 billion USD, or 27.02% (Table 4). Permitted investment from Hong Kong accounts for 11.35%, ranking 4th.

Table 4. Foreign Investment of Permitted Enterprises by Country of Origin, as of April 30, 2020 (USD Million). 176 Share of No. of Approved No. Country Approved Enterprises Amount Amount (%) 1 Singapore 325 23013.485 27.02 2 China, P.R.: Mainland 472 21288.615 25.00 3 Thailand 140 11375.368 13.36 4 China, P.R.: Hong Kong 259 9666.782 11.35 5 UK 103 4904.439 5.76 6 Republic of Korea 183 4057.332 4.76 7 Vietnam 27 2188.203 2.57 8 Malaysia 71 1967.489 2.31 9 Netherlands 25 1567.721 1.84 10 Japan 119 1266.099 1.49 … Total 1999 85167.400 100.00

Source: Directorate of Investment and Company Administration (DICA) 2020.

2.2 Relationship with China Myanmar and China established diplomatic relations in 1950. Despite the traditional cosy bilateral relationship, China was not a dominant investor in Myanmar until the middle of the 2000s, when Chinese enterprises were encouraged to ‘go global’. Chinese FDI then increased greatly with mega projects in hydropower and extraction industry sectors. The launch of Myitsone Dam, the Letpadaung Copper Mine and the Sino-Myanmar oil and gas pipelines accounts for the dramatic increase of Chinese investment during 2008-2011. In 2011, China surpassed Thailand as the top investor. In September 2018, Myanmar and China governments signed an MOU to build the China-Myanmar Economic Corridor (CMEC) under the

176 Directorate of Investment and Company Administration (DICA) 2020, ‘Foreign Investment of Permitted Enterprises as of (30/4/2020) (By Country)’, viewed 28 May 2020, https://www.dica.gov.mm/sites/dica.gov.mm/files/document-files/bycountry_10.pdf

303 framework of Belt and Road Initiative (BRI). CMEC is an infrastructure development plan, in which the transportation route coincides with the gas and oil pipelines from Yunnan Province in China through Muse and Mandalay to Kyaukpyu in Rakhine State. Chinese president Xi Jinping visited Myanmar on Jan 17-18, 2020 to push forward the construction of the China- Myanmar Economic Corridor, which is said to be the ‘priority among priorities’ for the Belt and Road Initiative. The two governments signed 33 memorandums of understanding, agreements, exchange letters and protocols, 13 of which were related to infrastructure (Zhou 2020). Some major Chinese investment projects are illustrated in Table 5. Table 5. Some Major Chinese Investment Projects. Investment Amount Project Name Company Name Project Status (Billion USD) Oil and gas China National In operation (gas 2.54 (expected) pipelines Petroleum pipeline in 2013, oil Corporation (CNPC) pipeline in 2017) Letpadaung Wanbao Mining Co., In operation 1.065 Copper Ltd. (suspended from Nov Mining 2011 to July 2015) Shweli China Huaneng In operation 0.46 (2.96 billion Hydropower Group RMB) Project Myitsone Dam China Power Construction is 0.80 (invested) Investment suspended since 2011 3.6 (expected) Corporation (CPI) Kyaukpyu CITIC (leading a Framework Agreement 1.3 Deep Sea Port consortium of 6 signed in Nov 2018 (part of SEZ) enterprises) Muse- China Railway MoU signed in Oct 7 Mandalay Group 2018 Railway Yangon New China Framework Agreement 1.5 City Communications signed in Nov 2018 Development Construction (no tender yet) Company Ltd.

3. Discussion

Table 6. Key Respondents, Myanmar field research, November 2019

304 Respondent Institution/Sector Role Location Code 370 Myanmar branch of a Chinese Senior management Yangon central enterprise (construction)

371 University, Myanmar Senior management, Yangon academic 372 University, Myanmar Senior management, Yangon academic 373 Myanmar branch of a Chinese Senior management Yangon central enterprise (construction)

373a Hong Kong enterprise (real Staff Yangon estate) 374 Myanmar branch of a foreign Senior management Yangon financial institute 375 Myanmar branch of a foreign Senior management Yangon financial institute 376 Myanmar Government Senior official Yangon (investment) 378 University, Myanmar Senior management, Yangon academic 379 Myanmar Government Senior official Nay Pyi Taw (commerce) 380 Myanmar Government Senior official Nay Pyi Taw (education) 387 Myanmar Government (foreign Senior official Nay Pyi Taw affairs) 388 Myanmar Government (foreign Senior official Nay Pyi Taw affairs) 389 Myanmar Government (planning Senior official Nay Pyi Taw and finance) 390 Myanmar Government (planning Senior official Nay Pyi Taw and finance) 395 A international relations think Senior management, Yangon tank & research institute in academic Myanmar 396 Enterprise supporting institute in Senior management, Yangon Myanmar academic 397 A Special economic zone in Senior official, Yangon Myanmar academic

Respondents provide insights from their working experience. In their years of working in a 305 central construction enterprise, respondent 370 and 373 have invested and overseen plenty of infrastructure projects in Myanmar, including B&R projects. Respondent 374 and 375 provide financial services for foreign investors in Myanmar, so they know the investment environment and financial system well. Respondent 373a witnesses the development process of the Hong Kong-invested enterprise. Besides, the academics (respondent 371, 372, 378, 395, 396 and 397) shared their viewpoints concerning Chinese investment and their analysis of the domestic and foreign situations. Officials from different departments and units of Myanmar government, especially respondent 376 and 379 who work on foreign investment and trade, introduced their issues of concern and views towards Chinese investment. According to our fieldwork, Myanmar has become a popular investment destination in recent years. At the same time, there are multiple challenges to investment: energy and infrastructure, labour, finance and institutional environment. We have explored the views and expectations of different Myanmar actors on BRI projects and investigate into the political and economic situation in Myanmar to better understand their circumstances and considerations. Table 7. Major themes and sub-themes discussed in interviews. 1. Views and • Rare opportunity for development Expectations for • More responsible investment BRI Projects 2. Challenges for • Gaps in infrastructure Foreign Investment • Shortage of educated labour and professionals • Underdeveloped financial system • Slow pace in creation of a more business-friendly environment • Overall: emerging economy to invest 3. Challenges for • Infrastructure bottlenecks Myanmar's • Governance capacity Governance • Domestic political struggles • Geopolitics: balance between US and China 4. Chinese • Public resentment on Chinese investment Investment in • Expanding Hong Kong investment Myanmar

3.1 Views and Expectations for BRI Projects Both the Myanmar government and academia indicated positive attitude towards BRI projects, which is almost the only chance of infrastructure assistance. Meanwhile, they expressed the need for the Chinese investors to uphold a more embracive notion of responsible investment and achieve win-win cooperation.

306 On one hand, the Myanmar side called for responsible investment that takes care of environmental and social interests other than simply economic interests. On the other hand, the academics (respondent 371, 372, 378) pointed out that Myanmar benefitted much less than expected from the Chinese projects but faced risks of unaffordable debts, raising doubts on whether the BRI projects are in line with Myanmar’s interests. A senior commerce official (respondent 379) commented that the existing China-backed infrastructure has limited benefits to agricultural logistics, as they do not connect the major agricultural hinterlands, and he expects the BRI projects can be more helpful. Chinese BRI players (respondent 370 & 373) admitted that the BRI projects in Myanmar are largely driven by China’s strategic motivations but Myanmar’s interests are not fully considered in the project design.

3.2 Challenges for Foreign Investment Central government officials in investment administration and commerce-related agencies (respondent 376, 379) identified gaps in infrastructure, such as transportation links and electricity shortage as the major challenges for the attraction of FDI. Road conditions are to be improved. Electricity supply is erratic. Blackouts occur from time to time even in the largest city Yangon and Capital Nay Pyi Taw. Myanmar has low-cost and abundant labour force (over 20 million) that favours manufacturing industries. The salary of a local employee in a real estate enterprise in Yangon is around 300 USD a month (respondent 373a), while a driver working every day earns less than 200 USD. All respondents agreed that there is a problem of a shortage of educated labour, as well as professionals like accountants. Local applicants often hold qualifications gained from distance- learning. As a result, the Chinese state-owned construction enterprise we visited has to second professionals from branches in neighbouring countries to work on tendering documentation. Respondents from a foreign financial institution (respondent 377 & 378) based in Yangon commented that financial products are very limited because the country has been closed for decades. The stock exchange market is recently re-established, but there are very few listed enterprises and no secondary market. Myanmar reopened the financial industry to foreign financial institutions only in recent several years to provide service for foreigner investors and promote reform in the backward financial system. Besides, Myanmar is still a cash-based society, due to distrust of the banking system, adding much costs to sales and banking. Commonly, people store cash at home and go shopping with a pile of cash. Only 10-15% of the population in Myanmar owns a bank account. Nonetheless, the telecommunication industry has developed fast in the past few years, and the e-wallet and mobile payments have made their debut in the market. To achieve a private sector-led growth, the government is now opening up the state-owned

307 monopoly industries, pushing forward the reform of the state-owned enterprises and improving the business environment. Respondent 376 from the investment administration unit believes that the business environment is quite convenient as the government has modified the investment laws, simplified the examination procedure of investment and removed entrance limitations. Nonetheless, the private sector looks forward to accelerating the pace to create a more business-friendly environment. The legal system is still outdated, and the implementation may vary from different townships. Also, the operational efficiency of the bureaucratic system is low. As the Research Team learned from a discussion with a senior manager in the foreign banking sector (respondent 377), foreign investors generally seek partnership with a local counterpart to secure the land. The local partner will also be instrumental to navigate the cumbersome government bureaucracy and get all the necessary approvals, and it is possible for a file to be ‘lost’ somewhere for 6 months, a comment which finds echoes in other discussions (e.g. respondent 370 & 373 from a Chinese state construction enterprise). Overall, the respondents from business circles are confident about the prospects of economic development, as the potential has been gradually released and will continue with the opening- up and reform process since the political transition. Whereas, they express concerns about the slow pace of economic reforms. The legal and institutional system still has many restrictions on business activities, but seemingly it is not the priority of the government officials. Their attention is more focused on infrastructure bottlenecks that affect energy supply and logistics.

3.3 Challenges for Myanmar’s Governance Infrastructure bottlenecks Respondents from a number of government economic agencies shared that infrastructure deficiency is the bottleneck of the development of the Myanmar economy. The government is on a tight budget and cannot afford to finance the infrastructure projects alone. Many countries have provided technological assistance but such help rarely includes financing the costly infrastructure constructions, except for China. Considering the situation, the Chinese BRI infrastructure development plans are seized as an opportunity that Myanmar should not miss (respondents 376, 379, 387, & 388).

The Myanmar government is cautious, however, about approving the Chinese infrastructure proposals with its national sustainable development goals. A senior academic with prior government experience commented to the Research Team that the Myanmar Sustainable Development Plan 2018-2030 exhibits a clear objective to achieve a balance between economic and social development, and environmental protection and sustainability. When evaluating the Chinese infrastructure projects, the government takes these factors into consideration, as well

308 as the debt risks. Also, in order to address the high level of public distrust on government, the government has sometimes resorted to withdrawal, modification and suspension of its project decisions, which should be expected to continue to take place in the future (respondent 378).

Governance capacity Many talents perished in the decades of junta rule or had left the country in exile. The higher education system was almost destroyed. This results in a severe shortage of talents in society including the government. Government officials, including some top officials, have been criticized to lack knowledge of the modern world and administrative abilities, impairing the quality of decision making at various levels (respondent 370 & 395). Senior officials from a number of departments (respondent 380, 389) converged on the impacts of a tight budget, insufficient human resources and difficulty in coordinating different departments for implementing national policies. Experience from business practice also confirms the depth of bureaucratic inefficiency as it is common for a piece of documentation to get ‘lost’ for months when navigating the offices of the working level officials (respondent 374). Respondents from local academia (371, 372, 378) shared that the government decision-making procedures do not necessarily include the solicitation of public opinion and there is a general lack of transparency. Public consultation, if held, is short and ineffective, information release is insufficient, and negative opinions are ignored. At the same time, there is an influential NGO sector which further fuels the public resistance to the planned projects and related government decisions.

Domestic Political Struggles The military is still of influence in parliament and state-owned economic sectors. To preserve its interests and power, the military usually contends with the civil government, which takes a conciliation policy (respondent 395).

Insurgency in border area is another challenge. As a local academic (respondent 395) points out, the government has low influence on border area while the armed groups take control. The last few years have witnessed the failure of the government to independently address the border insurgency.

309 Geopolitics Myanmar is cautious to deal with relations with US and its alliances that have shown interests recently and avoid over-reliance on China. Nevertheless, Myanmar is unable to keep away from China because of the close relations in geography and economy. As the largest trade partner, China can exert pressure on Myanmar by merely adjusting the trade policies, such as increasing tax rate, modifying the list of legal import goods and reducing the quota of import. Besides, as stated previously, the government is hard to reject the infrastructure investment that China offers. Moreover, China has great influence on armed groups that control border area and is believed to be able to bring peace under close collaboration, as an academic (respondent 395) commented. Nonetheless, a senior academic with foreign policy experience in government shared that the policy is to seek a balance between the major powers and avoid over-reliance on either US or China (respondent 378).

3.4 Chinese Investment in Myanmar Public Resentment on Chinese Investment Respondent 370 & 373 from a Chinese central enterprise active in the Myanmar infrastructure investment complained to the Research Team that the negative community reception of Chinese investment has hurt their business activities. Chinese investment is labelled as irresponsible and associated with the former military government. An academic (respondent 378) indicated that there is irrational opposition towards all Chinese investment. The new government attempts to be responsive to the people and to keep a balance between great powers, jointly adding difficulties to Chinese investment, especially large projects in CMEC. Local academics (respondent 371, 372 & 378) explained that the public resistance derives from the concerns of huge impacts on environment, local community, culture and religion, as well as the debt risks. They also admitted that having considered all factors, there is a need to give and take, given the need for investment in Myanmar. ‘(We try to) educate people that, we should not just say no to China, but we must have a look at the costs and benefits’ (respondent 371 & 372). Another reason for the resistance is lack of transparency in related government decisions. Our interviews with government officials show that they have yet to find a way to enforce participatory governance. There is still neither platform for public discussion on investment projects, nor a mechanism to incorporate public opinion in government decisions, as local academics suggested (respondent 371, 372, & 378). The decision-making process is still non-transparent, despite progress on the release of information of projects that have been permitted and ready to implement (respondent 389 & 390). The public is strongly influenced by NGOs and medias that one-sidedly focus on certain issues (respondent 371).

310 Situation of Hong Kong Investment Hong Kong-invested enterprises have achieved initial success in various sectors including real estate with benefits from the support of Hong Kong professionals. In addition, Hong Kong investors plan to expand the business to telecommunications, retail, catering and agricultural product trade (respondent 373a). Local investors are willing to join Hong Kong projects that have many successful cases, as an official working on investment affairs (respondent 376) stated. Hong Kong investment is also at risks of the withdrawals and modifications of government decisions because of public concerns on environmental, cultural and religious impacts.

4. Hong Kong Roles

4.1 Project financing and Investment

As of April 2020, Hong Kong is the fourth largest investor that accounts for 11.35% of the total permitted FDI.177 Hong Kong will continue to play its role in financing Myanmar projects. The respondents from business circles in Myanmar are confident about the prospects of economic development, as the potential has been gradually released and will continue with the opening- up and reform process. Foreign investors depend on international financial institutes, as the financial sector in Myanmar is undeveloped, with financial system that does not match international standards and very limited financial products (respondent 377 & 378). The stock exchange market is recently re-established, but there are very few listed enterprises and no secondary market. The ongoing China-Myanmar Economic Corridor poses more needs for international financial services. Traditionally, many Chinese enterprises house capital in Hong Kong and then direct it to projects around the world (Salidjanova 2011). Faced with public resentment on Chinese investment, more Chinese companies route their capitals through Hong Kong, Singapore and other countries (Gelb, Calabrese & Tang 2017). Chinese SOEs consciously introduce international capitals in project investment to weaken the ‘China-led’ impression (respondent 370, Myanmar, 2019). In addition, Hong Kong investors are important and credible players in Myanmar with plans to expand business. They are engaged in a wide range of industries, including manufacturing, hospitality, logistics, and real estate. Hong Kong-invested enterprises have achieved initial success in various sectors including real estate and manufacturing. In recent years, garment manufacturers have been transferring the factories from Mainland China and periphery

177 Directorate of Investment and Company Administration (DICA) 2020, ‘Foreign Investment of Permitted Enterprises as of (30/4/2020) (By Country)’.

311 Southeast Asia countries such as Cambodia and Vietnam to Myanmar to reduce labour costs (Su 2014; Tan & Chan 2017). The Hong Kong Trade Development Council is planning to develop a Hong Kong industrial park in Yangon New City (Mao 2019, para 4). In addition, Hong Kong investors plan to expand the business to telecommunications, retail, catering and agricultural product trade (respondent 373a). Local investors are willing to join Hong Kong projects that have many successful cases, as an official working on investment affairs (respondent 376) stated.

4.2 Professional services: public relations and corporate social responsibility Since the political transition in 2011, the changing political situation, liberalizing economic environment, and rising public awareness pose new challenges for Chinese investment (Lu & Jin, 2016). A bias against Chinese investment has formed, producing additional difficulties for follow-up investment and operation. Respondent 370 & 373 from a Chinese central enterprise active in the Myanmar infrastructure investment complained to the Research Team that the negative community reception of Chinese investment has hurt their business activities. Chinese investment is labelled as irresponsible and associated with the former military government. An academic (respondent 378) indicated that there is irrational opposition towards all Chinese investment. Myanmar government and academics welcome investments in infrastructure and energy sectors, including those on BRI projects, to break the bottleneck of energy supply and logistics. Meanwhile, they expressed the need for the Chinese investors to uphold a more embracive notion of responsible investment and achieve win-win cooperation. These projects are environmentally and socially controversial and the Myanmar government is, however, cautious about approving the them with its national sustainable development goals. The Chinese enterprise managements have realized the significance to perform corporate social responsibility (CSR) and repair image (respondent 370 & 373). However, comparing the Chinese central enterprise and the Hong Kong enterprise that we visited in Myanmar, we notice a great distance between their understandings, strategies and performance in CSR, as shown in Table 7 below. Even though these two enterprises are different in their sectors, scales and investment background, this comparison to some extent illuminates the gap in CSR conceptions and capacities. The Hong Kong enterprise has set the principles of sustainable development and creating values to stakeholders and applied them throughout the business operation and social activities. The initial Hong Kong operations team and the support of Hong Kong professionals contribute to the organized and systematic operation of CSR.

312 Table 8. Comparison of a Central Enterprise and a Hong Kong Enterprise in Myanmar on CSR Central Enterprise Hong Kong Enterprise (real (construction) estate) Understanding Compliance with laws, respect of Sustainable development with of CSR local culture and customs, their local community, creating values construction work that is to stakeholders and philanthropy conducive to local economy, and philanthropy (including donation and aid projects) CSR for Local Local employees: Chinese Local employees: Hong Kong Employees employees=2:1 employees=9:1 The senior management believed The Hong Kong staffs said that that local employees are they stressed on passing on incompetent and have no plan to experience and skills to the locals. train them so far. The department heads are all Now some department heads are Chinese while local employees locals, as ability decides position take low-status job. in the company. CSR for Society No clear CSR plans or Clear CSR strategies, specialized and programmes. department for CSR, irregular Environment CSR reporting, and localized CSR programmes in operation

It would be beneficial for the Chinese companies to employ the assistance of international, and Hong Kong, professional services to improve their performance, in particular in the dimensions of corporate social responsibility and communication with the public. According to a survey on central enterprises, the primary limitations of overseas CSR performance are the lack of professional organizations and talents (75%), and the lack of theoretical and practical guidance on overseas performance (70%) (Huang et al., 2018). Some Chinese enterprises outsource CSR work to independent international consultancies (Kirchherr, Charles & Walton, 2017). The Big Four professional services networks, large Certified Public Accountants (CPA) firms in Hong Kong such as BDO and other professional firms such as SGS are providing CSR and sustainability services to their clients all over the world. They are experienced in communicating with the NGOs and the stakeholders and skilful in providing solutions of CSR and public relations. Chinese enterprises can directly make use of these professional services to enhance CSR performance and mitigate risks. Additionally, they can build up institutions and foster talents through partnership with these consultancies that offer training courses and management services.

313 4.3 Professional services: public governance A shared challenge for foreign investment in Myanmar is the political risk arising from abrupt changes in government decisions due to public opposition. Our interviews with government officials show that they have yet to find a way to enforce participatory governance, to raise public trust in the government and enhance transparency in project decision-making. There is still neither platform for public discussion on investment projects, nor effective mechanism to incorporate public opinion in government decisions, as local academics suggested (respondent 371, 372, & 378). The decision-making process is still non-transparent, despite progress on the release of information of projects that have been permitted and ready to implement (respondent 389 & 390). Tension between the government and the public is not assisted by a popular scepticism within the policy circle that the public is strongly influenced by NGOs and the international media that often one-sidedly focus on certain issues (respondent 371).

Hong Kong professionals have roles to play in improving the quality of public scrutiny and participation. For one thing, they can be a source of public credibility through quality and internationally accredited services in project assessment, testing and monitoring, in areas such as environmental and social impact assessment, environmental pollution inspection and so on. For another, public participation can be more effective if government and enterprises seek the help of Hong Kong professionals, as professional third parties, to establish and enforce systems to engage with stakeholders, collect public opinions, release information and show responsiveness.

314 References

Gelb, S, Calabrese, L & Tang, X 2017, ‘Foreign direct investment and economic transformation in Myanmar’, China: Carnegie-Tsingua Centre for Global Policy, viewed 28 May 2020, http://set.odi.org/wp-content/uploads/2017/04/SET-Myanmar-FINAL-170404.pdf Huang, Q, Zhong, H, Zhang, C & Li, Y 2018, Research report on corporate social responsibility of China, 社会科学文献出版社, Beijing. Kirchherr, J, Charles, KJ & Walton, MJ 2017, ‘The interplay of activists and dam developers: The case of Myanmar’s mega-dams’, International Journal of Water Resources Development, vol. 33, pp. 111-131. Salidjanova, N 2011, ‘Going out: An overview of China's outward foreign direct investment’, USCC Staff Research Report, US-China Economic and Security Review Commission, viewed 28 May 2020, https://www.uscc.gov/sites/default/files/Research/GoingOut.pdf Su, DX 2014, ‘Hong Kong garment manufactureres eye Myanmar outsourcing’, just-style, viewed 28 May 2020, https://www.just-style.com/analysis/hong-kong-garment- manufacturers-eye-myanmar-outsourcing_id121397.aspx Tan, W & Chan, E 2017, ‘Myanmar beckons, but pitfalls aplenty’, The Standard, viewed 28 May 2020, https://www.thestandard.com.hk/section-news/fc/1/181185/Myanmar- beckons,-but-pitfalls-aplenty Mao, YQ 2019, ‘緬甸改革開放八年港商早著先機成第四大投資方 (Eight years after Myanmar's reform and opening up, Hong Kong has taken the lead to become the fourth largest investor)’, Hong Kong 01, viewed 20 May 2020, https://www.hk01.com/世界說 /377066/緬甸改革開放八年-港商早著先機成第四大投資方 Lu, GS & Jin, Z 2016, ‘Myanmar's Economic and Political Transition and Chinese Investment in Myanmar’, in Li, C, Sein, CC & Zhu, X (eds.) MYANMAR: Reintegrating into the International Community, World Scientific, Singapore, pp. 245-265. Zhou, L 2020, ‘Chinese President Xi Jinping wraps up Myanmar visit with string of infrastructure deals, including strategic Indian Ocean port’, South China Morning Post, viewed 28 May 2020, https://www.scmp.com/news/china/diplomacy/article/3046694/chinese-president-xi- jinping-wraps-myanmar-visit-string

315

APPENDICES

316 附錄一：廣東部分課題實施情況總結報告

1 廣東部分課題調研方法及成果概覽

1.1 研究範圍及目的

1.2 研究合作的聯繫與建立

1.3 訪談調研

1.4 問卷調查

1.5 調研成果

2 調研發現及討論

2.1 企業對一帶一路建設的看法及遇到的困難

2.2 企業參與一帶一路過程中對各級政府及香港的需求

2.3 粵港澳大灣區建設中香港專業服務可發揮的作用

3 結論與政策建議

3.1 結論

3.2 政策建議

4 附件

附件1 「一帶一路發展與香港專業服務作用」東莞調研提綱

附件2 「一帶一路發展與香港作用」中山調研提綱

附件3 「一帶一路發展與香港專業服務作用」企業訪談提綱

附件4 順德區營商環境調查問卷

附件5 2017年6月順德調研總結

317 Appendix 1: Summary Report for Guangdong Research

Content Section I Research Methods and Results

1.1 Research Scope and Objectives 1.2 Research Collaborations 1.3 Interviews 1.4 Questionnaire 1.5 Research Outcomes

Section II Research Findings

2.1 Enterprises’ Understanding of Belt and Road and Difficulties Encountered 2.2 Roles of Chinese Government and Hong Kong in Assisting Enterprises in Belt and Road 2.3 Roles of Hong Kong Professional Services in Facilitating Greater Bay Area

Section III Conclusion and Policy Recommendations

3.1 Conclusion 3.2 Policy Recommendations

Section IV Annexes Annex 1 ‘Belt and Road Initiative and Impacts of Hong Kong Professional Services’ Questionnaire for Fieldwork in Dongguan Annex 2 ‘Belt and Road Initiative and Hong Kong’s Role’ Questionnaire for Fieldwork in Zhongshan Annex 3 ‘Belt and Road Initiative and Impacts of Hong Kong Professional Services’ Interview Guidelines for Enterprises Annex 4 Questionnaire on Business Environment in Shunde District Annex 5 Research Findings of Fieldwork in Shunde, June 2017

318 概要

一、本章節系統闡述了香港專業服務與一帶一路建設課題在廣東部分的調研實施情況、

調研發現與研究成果、調研結論和相應的對策建議。廣東部分的課題研究主要關注廣

東企業在一帶一路發展中遇到的困難和問題，由此對香港專業服務的需求問題，並擔

負向廣東政府、企業及行業協會商會宣傳介紹香港專業服務在一帶一路、粵港澳大灣

區建設中可以發揮的作用。報告介紹了課題組三年間通過深入訪談、問卷調查等方式

獲得了大量一手資料，通過與廣東有關高校、研究機構、智庫的對接聯繫，與廣東建

立了合作研究聯盟，通過專題講座、研討會、公開發佈論文等形式宣傳介紹了香港專

業服務的作用。

二、報告闡述了調研發現，認為總體上一帶一路倡議有利於中國企業的跨國經營及出

口，在內地生產成本增加和信用體系仍不完善等營商環境下提供新的機遇。然而在此

過程中，企業也遇到各種困難。一帶一路沿線國家的政治風險與政策波動使企業經營

經常受挫，當地行政環境差、企業對當地法律了解不夠深入以及當地法律不完善增加

了企業經營的成本，而外向型企業內地在收匯受制約，更願意以香港為中轉站。另外，

參與一帶一路倡議的企業中，內地的大企業獲利較大，而小微型企業面臨風險與成本

更高，更需要得到政府、行業協會及專業服務的支持。

三、另外，企業認為參與一帶一路過程中，內地政府及香港可以協同發揮作用。例如，

聯手進行考察及設立展會，幫助企業在沿線國家的銷售，對接匹配的市場，溝通當地

政府部門。在制度上，內地政府可為企業提供支持，如與當地政府接洽、為企業信用

背書，設立有安全保障的生產園區，配套相關的金融機構，提高人員出入境流動的便

319 利性，簽訂雙邊法律協議及提供面向企業的營商環境培訓。香港的作用可以體現在便

利的國際營商環境和專業服務的支持。以廣東企業為代表的內地企業對香港專業服務

有需求，目前國企和大型企業較多採用香港專業服務，小微企業仍需建立更多渠道和

聯繫，協助他們獲得服務的機會。香港專業服務在大灣區醫藥、科技等領域都展開了

行業或高校科研的合作。內地政府如珠海就已推出了促進人才流動的各類利好政策。

然而粵港澳三地之間合作仍存在制度壁壘，包括跨境科研項目的基金支持仍存在障礙、

職業資格互認仍需落實。

四、調研得出結論，香港專業服務在一帶一路、粵港澳大灣區深圳先行示範區建設中

已經發揮並將持續發揮重要作用。專業服務主要聚焦在會計、法律、金融、會展、信

貸評級等領域，以彌補內地企業自身不足和營商環境短板。例如，香港專業服務可以

和珠三角企業互動、融合，對接珠三角製造業服務業等，推動企業的國際化與轉型升

級，以及自身的可持續發展。大灣區建設中，香港的一大作用在於帶動全國的全面深

化改革、擴大開放、消除壁壘、加快要素流動，推動高質量發展模式的建立和營商環

境與信用的進一步完善。

五、報告提出了相應的對策建議。粵港澳三地政府加強溝通，促進區域要素資源的便

捷流動，營商環境的有序銜接，提高法治及社會信用體系建設水平，促進人才、物資、

資金、信息等資源的流動。香港政府可支持有關部門、商會、行業協會和企業與內地

合作，發揮專業服務優勢，助力內地企業在一帶一路中的可持續發展；內地仍需深化

「放管服」改革，提高與港澳營商便利程度，消除壁壘，加快數字政府建設及監管體

系建設，建立良好的社會信用文化。為此，香港政府宜研究一些促進粵港澳之間交流

320 合作的具體措施，鼓勵廣東省主動研究和學習香港在信用建設方面的經驗，提高市民

遵守信用的意識。香港的專業機構和監管機構應更多向廣東分享相關的實踐經驗。

321 Executive Summary

1. This report outlines the findings arising from the research conducted in Guangdong Province as a part of the Study. A major focus of the research was to understand the challenges Chinese enterprises in Guangdong encountered when participating in the Belt and Road Initiative (BRI), and their expectations for Hong Kong professional services. The research team conducted in-depth interviews and surveys with the business sector, government departments and scholars from various research institutes in the Greater Bay Area (GBA). Results reveal that the Guangdong stakeholders expect professional services from Hong Kong to play a more active part in supporting business in BRI and providing constructive guidance in GBA development. By connecting with these stakeholders, the research team facilitated communications on the issue, established cooperation for collaborative research, and promoted the important roles of Hong Kong professional services through lectures, seminars, and publications.

2. The research finds that many Chinese enterprises in Guangdong have been encouraged by the BRI to expand their operation overseas amid the trend of increasing labour cost and developing credit system in the domestic market. However, Chinese enterprises have been experiencing difficulties in various aspects. First, political instability and domestic competition in BRI countries lead to inconsistent policies and interruption to business operations in the overseas markets. Secondly, inefficient local governance and lack of a sound legal system in many B&R countries mean additional costs. Third, exchange control in Mainland China poses another issue so that Hong Kong is a preferred location for overseas transactions. Fourthly, the small-medium sized enterprises in Guangdong yearned for more support from the government and Hong Kong professional services.

3. Chinese enterprises hold the view that the Chinese and Hong Kong governments should collaborate more in supporting business in BRI, for example, through jointly organizing exhibitions on overseas business opportunities. The expectations for the Chinese government include: provide credit guarantees for the transactions, provide a safe production and living environment through setting up overseas industrial parks, and negotiating bilateral legal agreements frameworks with the host governments, facilitate cross-border mobility, and training on B&R business environment. Expectations for Hong Kong are: improve the accessibility of quality professional services to Guangdong enterprises, especially to the small/medium sized ones. Ongoing collaborations, including

322 those in medicine and technology, took place amongst the bigger companies, including universities. Collaboration within the GBA still exhibits multiple institutional barriers.

4. The research concludes that Hong Kong professional services have already been playing and will continue to play significant roles in the B&R and GBA. Hong Kong professional services focus on accountancy, legal, finance, exhibition and credit rating sectors. They effectively fill the gaps of weaknesses and disadvantages in business environment of the Chinese enterprises. For example, Hong Kong professional services could connect and interact with manufacturing industries in Guangdong to strive for internationalization, industrial upgrade and sustainable production. In GBA development, Hong Kong’s role lies in the deepening of comprehensive reform and opening up, removing institutional barriers, enhancing factor mobility and creating a sound business environment with quality development model.

5. This report provides corresponding policy recommendations. The governments in GBA should strengthen co-ordination and communication to facilitate higher mobility of regional factor resources including human resource, capital, goods, materials and information. Through supporting the relevant departments, chambers of commerce, associations and enterprises to collaborate with their Mainland counterparts, the Hong Kong government could leverage on the advantages of the Hong Kong professional services and contribute to the sustainable development of Mainland enterprises in B&R. The Mainland government, on the other hand, should advance reforms to ‘delegate power, streamline administration and optimize government service’ to facilitate conduct of business. Therefore, the Hong Kong government should examine the specific measures of how to promote exchange and collaborations among Guangdong, Hong Kong and Macau. The professional services and regulatory institutions in Hong Kong may share more practical experiences.

323 1. 廣東部分課題調研方法及成果

1.1 研究範圍及目的

A)圍繞本課題研究問題，對內地主要是廣東區域進行調研，瞭解廣東企業特別是

在「一帶一路」沿線國家和地區投資發展的企業在走出去過程中存在的問題和挑戰，

對香港專業服務的需求情況、合作發展情況。

B)探究香港專業服務與廣東企業合作發展的機制與路徑。

C)與廣東有關智庫、高校、研究機構溝通、協調，建立研究合作聯繫。對企業、

協會/商會、政府推介香港專業服務對「一帶一路」、大灣區建設的作用。

D)探究粵港澳大灣區建設過程中香港專業服務與大灣區企業合作發展的路徑。

廣東部分的調研任務負責人，岳芳敏，廣東省委黨校（廣東行政學院）經濟學教

研部，教授。

梁雨晴，深圳大學管理學學院公共管理系，助理教授。

總課題主持人李芝蘭教授，及香港城市大學香港持續發展研究中心成員團隊參與

工作。

1.2 研究合作的聯繫與建立

為了利於項目調研的順利開展，課題組不斷拓展科研合作對象，與北京、廣東有

關科研機構、智庫及高等院校建立了廣泛的研究合作關係和聯繫。這些機構在當地均

具有豐富的科研網絡，科研基礎和實力較為雄厚，從而促進課題組在北京、廣東等地

的調研工作的展開。在廣東部分的具體情況如下：

2017年5月，課題組赴廣州調研期間，分別與廣東省社科院海上絲綢之路研究院、

324 廣東省體制改革研究會進行洽談，就雙方開展合作研究事宜簽訂協議，並與廣東省體

改研究會簽署正式合作備忘錄。之後與廣東省社科院海上絲綢之路研究院合作對順德

營商環境、順德企業“一帶一路”走出去過程中的風險和挑戰進行座談及問卷調查

（附錄3,4,5）。與省體改會攜手，促成香港與南沙/廣東在專業服務方面的合作，其中

珠三角企業、社區等為主要的香港專業服務對象，在當地粵港合作專案中發揮了積極

示範作用。

2017年12月，課題組與深圳大學一帶一路研究院（深圳大學特區研究中心）就雙

方開展一帶一路研究洽談合作，簽訂合作備忘錄。深圳大學一帶一路研究院致力於從

經濟學角度開展特區及一帶一路沿線國家的相關研究。深圳作為內地新崛起的科創中

心，也是粵港澳大灣區核心城市之一。為了瞭解其科創企業在一帶一路中的發展情況

與作用，2018年，在深圳大學一帶一路研究院協助下，課題組赴深圳市騰訊公司參訪、

調研。2018-2019年期間，雙方互派成員參加各自舉辦的相關學術會議、交流會，就研

究內容展開深入、廣泛的討論。如，2018年，梁雨晴博士、姬超博士參加深圳大學主

辦的2018世界經濟特區（深圳）論壇，2019年梁雨晴博士、王煒文講師、羅曼(博士生)

在2019世界經濟特區論壇上分别針對香港专业服务、粵港澳大灣區有關問題作了演講。

2018年5月，组成员梁雨晴博士參與廣東省編辦主持的粵港澳大灣區行政體制

比較改革的研究，對廣東、香港、澳門三地的營商環境進行比較研究。

1.3 訪談調研

2017年-2019年期間，課題組赴北京、廣東、上海、新疆進行了大量田野調查，根

據「一帶一路發展與香港專業服務作用」的訪談提綱（附錄3），對政府官員、一帶一

路相關企業、學者們進行了廣泛而深入的半結構性訪談。調研活動基本情況如下：

325

2017年訪談調研情況：

時間調研對象主要內容訪談編號No.

5月29-31日廣東省學術機瞭解廣州開發區企業在「一帶一 001 ， 034 ，廣州調研構及政府部門路」國家和地區走出去發展情況 035

6月15-20日順德區商業協深入瞭解了企業在一帶一路沿線發 037-070 ， 072- 順德調研會、政府部門展遇到的困難，對香港專業服務的 086 及 8 家企業的需求方面的問題，獲得了較全面的管理人員一手資料。 7月16日中山市南朗鎮瞭解中山企業當前發展情況，在一 092-100 中山調研商業協會及各帶一路沿線國家和地區走出去發展類 5 家企業的情況、面臨的困難，對香港專業服管理人員務的需求等。 7月22-23日東莞市製鞋業瞭解鞋業企業的轉型升級發展情 103-105 東莞調研企業及商業協況，在一帶一路沿線國家地區的投會資發展情況；企業對香港專業服務的需求與合作。

2018年訪談調研情況：

時間調研對象主要內容訪談編號No.

4月某央企花都區瞭解廣州花都區電視機生產企業向東 194 廣州調研生產基地管理南亞市場銷售及投資設廠情況，困難人員與問題。 11月東莞數控織機 1.瞭解東莞企業在一帶一路沿線的發 238-241 東莞調研生產企業2家及展現狀、困難，對香港專業服務的需材料類企業1家求的管理人員， 2.瞭解園區建設發展情況，園區企業東莞的高新產發展情況，與香港專業服務的聯繫情業園區及創新況，對其需求情況。孵化園區企業調研 11月政府部門官員深圳市權責清單實施情況，遇到的問 237 深圳調研題

326

2019年訪談調研情況：

時間調研對象主要內容訪談編號No.

1月廣東省某社會瞭解該研究所的緣起及其研究重點， 248 ， 249 ，廣州調研智庫類研究院對港澳問題、大灣區、一帶一路的研 250 究。 5月廣東省順德區粵港澳大灣區建設的重要節點城市佛 285 ， 286 ，工業設計城及山順德區各有關領域當前的改革發展 287 ， 293 ，社會創新機情況，取得的新進展、遇到的阻力與 297 構，順德區政困難。府部門 6月中央政府部門中央對於一帶一路的政策考量、會計 101，155 官員，上海某師事務所對於一帶一路的參與情況、大型國際會計問題師事務所管理人員 8月江門市區縣鎮粵港澳大灣區營商環境情況。通過對 323 ， 324 ，江門調研有關部門，有政府有關部門、各地企業、協會商會 325 ， 328 ，關企業行業協等的深入訪談，具體深入地瞭解珠三 329 ， 331 ，會商會；中山角地區營商環境改革發展現狀，有待 332 ， 333 ，市、區縣鎮有深化改革的具體問題，企業在一帶一 334 關部門，中山路沿線發展中碰到的困難問題，對香市有關企業；港專業服務的需求等。珠海市政府、高新區、橫琴區，珠海市有關企業 11月25日順德區政府部瞭解順德近幾年在行政審批改革方面 399，400 門官員的發展及困境 11 月 26 日 - 廣州市天河區上市公司涉風險及紓困基金政策實施 401 - 405 27日政府部門及證情況、與香港專業服務的合作聯繫情券公司1家，廣況。州市黃埔開發區科技類企業3 家 11 月 28 日 - 深圳市南山區對上市企業涉風險公司的紓困基金落 406 – 411

327 時間調研對象主要內容訪談編號No.

29日前海片區金融實情況；創新升級發展中與香港專業機構、交易所服務的合作情況及科技類企業3 家，生态公司1 家 12月11日廣東省社科研就廣東當前改革發展情況、大灣區建 034 究學者設情況，大灣區優化營商環境等進行了交流 12月12日廣州市1家工程瞭解工作重點和範圍，工作夥伴對象 412，413 咨詢類企業的及計划；該咨詢機構參與的一帶一路管理人員工作及其遇到的困難與挑戰；與香港專業服務的聯繫

1.4 問卷調查

2017年7-8月份對順德區各鎮有關部門、協會（包含商會）、企業進行問卷調研，

目的是瞭解順德各類型企業、各行業企業代表對順德營商環境的總體看法；這次問卷

調研主要由廣東省社科院廣東順德發展研究院進行，我方團隊進行了數據分析。本次

共收回1116份問卷。調查對象覆蓋了北滘、陳村、勒流、大良、樂從等順德下轄鎮區，

以及各類商業協會會員企業。

1.5 調研成果

課題組在廣東等地持續三年的調研活動中積累了豐富的成果，並在此過程中將研究

成果在公開刊物發表。一些精選例子包括：

（1）論文《加快創新步伐推進「一帶一路」建設》，發表在中國體制改革研究會主

辦、國家行政學院協辦的刊物《行政改革內參》上，2017.5；該文修改完善後選入

《香港專業服務與一帶一路》，香港城市大學出版社，2019.8；

328 （2）《粵港澳大灣區視角下香港科技資源配置效率研究》，論文入選廣東社科聯、

香港大公文匯傳媒集團、澳門基金會、澳門社會科學學會主辦的「粵港澳大灣區

學術研討會（2020深圳）」，2020.1.11-12。

（3）《大灣區要素流動的新思考方向：超越對等與非對等》《制度矛盾與社會變遷：

一國兩制與大灣區改革》在2019世界經濟特區（深圳）論壇上宣讀。

成果分享与交流

在項目研究中，課題組階段性地與相關人士分享調研發現成果並進行交流，共同

探討一帶一路、粵港澳大灣區、深圳先行示範區建設的相關議題，增進雙方領域的互

相了解。活動包括在廣東省市、區、縣的高校、企業、協會及政府部門間開展專題研

討交流，同時宣傳介紹香港的角色，包括香港專業服務的作用，香港在擴大深化改革

開放、推動高質量發展中的作用，介紹香港經驗對於廣東行政審批制度改革、政府職

能轉變、推進國家治理體系和治理能力現代化方面的作用。

具體研討交流的活動：

時間活動

2017年5月李芝蘭教授赴深圳大學管理學院進行有關一帶一路的主題演講。

2017年6月李芝蘭教授赴暨南大學經濟學院作了題為「專業服務與一帶一路：高峰論壇解讀及香港的角色」的講座。

2017年8-12月岳芳敏教授在中山市、陽江市面向政府機構開展主題研討，圍繞企業走出去、一帶一路沿線投資經營的話題，指出企業可以與香港專業服務合作。

2018年3-6月及9-12 岳芳敏教授在廣東省多地開展主題研討，與各地政府部門機月；2019 年 4-12 構、各地工商協會共同探討“香港專業服務在一帶一路、粵港

329 時間活動

月；2020年1月澳大灣區建設中的作用”、“現代化經濟體系”等相關議題，強調在一帶一路、全面開放新格局方面，可以與香港專業服務加強合作。

2019年11月李芝蘭教授赴深圳大學作有關一帶一路的主題演講；

2019年12月梁雨晴博士參加中國行政管理學會年會并發表粵港澳大灣區相關論文。

2. 調研發現及討論

2.1 企業對一帶一路建設的看法及遇到的困難

（1）一帶一路倡議有利於中國企業的出口業和跨國經營。2017年7月1日開始實施

的全國海關報關一體化，實現了異地報關，貨物在生產地的港口出港。比如一個全國

性的進出口貿易公司，若在寧波有一般貿易的貨物出口需要的話，就可在寧波把這些

貨物運輸到寧波的港口，然後可在中山、廣州、北京或寧波或中國任一地點報關。這

一改革舉措，打破了過去必須統一的行政規制壁壘，有利於企業的出口。

例如廣東中山市一家海運公司，目前擁有35萬個標準箱的外貿業務量。三分之一

的外運貨物通過深圳鹽田、廣州南沙轉走。以前，經香港轉運的貨櫃量佔90%，而現

在，有三分之二的集裝箱經過香港轉運，表明目前香港所佔百分比有所降低。中山市

作為一個製造業城市，中山市的TCL空調、格蘭仕電器、台資、外資的電子產品與工

業品，傳統出口市場包括日本、歐洲、美國是中山外向型企業產品的出口地。一帶一

路沿線新市場的開闢，可出口到中亞、中東、印度新市場，也拓展了外運物流業務，

包括海運和陸運。陸運主要是通過東莞石龍物流園區的集裝箱班列運達俄羅斯、歐洲。

（2）內地企業與香港業務的聯繫主要集中於業務對口的企業，法律、會計等專業

服務聯繫較少。例如，該位於中山市的海運公司表示其與香港的律師、會計這些服務

330 機構聯繫比較少，與香港的一些國外貿易公司、外運公司聯繫較多，例如中遠、中海

的貿易公司，中遠、中海、東方海外、馬斯基這些國外的幹線的公司。內地企業與香

港的聯繫主要在香港幾大碼頭如MTL、HIT這些中轉的樞紐港口，香港或國外的貨代公

司、快遞公司、敦行、HL、聯合八股，和香港的一些船舶督會、協會。

（3）內地生產成本激增和信用體系尚欠缺，導致勞動密集型的私營及外資企業更

傾向於走出去。

改革開放以來，生活資料的生產和加工市場成為民營經濟的主戰場。對於勞動密

集型的私營及外資企業，隨著國內生產成本提高，更傾向於走出去。國內稅負負擔過

重，一些企業不願意再在內地繼續從事生產製造。而東南亞等國家人力資本、原材料

資本相較於國內低很多。比如，中山市一家針織面料企業老闆表示由於市場萎縮、國

內勞動力成本和稅收升高，如五千萬營業額中2千萬交稅只能余30萬利潤，行業大企業

多去東南亞辦廠，同時也會銷售回國內的市場。

2008年後，廣東的面料、紡織企業大約40%都遷到東南亞，7家做紡織面料的在香

港上市的大企業都在東南亞設廠。許多勞動密集型的企業外遷，包括制鞋業、玩具業、

傢具業等，其中台資外遷較多。值得注意的是，內地科技整體發展水平及勞動力的受

教育水平較之東南亞國家都高，因而也有個別技術含量較高的鞋企沒有外遷。例如，

東莞一家用大數據、智造的定制化生產的台資鞋企仍然在東莞生產。

由於內地市場信用體系欠缺，也成為一些企業走出去的因素之一。內地市場大，

但是存在無序競爭、競價打價格戰現象，且信用體系不完善，企業之間不重視合同規

定，國內企業常無視合同約定、不按合同規定時間付款，拖欠貨款現象較為普遍。發

達國家市場的信用體系較好。一些敢於去東南亞發展的小微企業得到了更好地發展，

個別做得越來越大。一些小的面料企業隨著下遊客戶遷移到東南亞地區，在那裡越做

331 越大了。但由於出去設廠成本過大，大多數的小微企業選擇留在本地。這類小微企業

有的還在堅持做原來的傳統產品，正遭遇外部訂單減少，國內市場沒有開發出來，面

臨停產的困難。而還有個別實力較雄厚的企業選擇去歐美發達國家設廠經營。

（4）企業在一帶一路沿線國家投資經營過程中遭遇了各種困難。

首先，一帶一路沿線國家政治風險大，政策波動大，中資企業受其影響深。訪談

中企業表示，在一帶一路沿線國家做貿易或在當地設廠生產經營，很艱難，很多都是

失敗的投資。比如，中資企業在俄羅斯投資的批發市場，沒過兩年就把商鋪都封閉，

要給錢才能經營，導致投資者傾家蕩產。即使是大型的電器企業也不例外。俄羅斯新

關封鎖，配件材料很難進入當地。白俄羅斯要求按中國員工：本地員工1:5的比例配套，

貿易公司難以承受支付較高的員工成本。一家著名的電器企業曾在2006年於越南設立

一個工廠，負責人表示成本很高，其中10%要作為「小費」。因為水土不服，出去投

資經營很痛苦。

第二，當地行政環境差，腐敗嚴重，靠行賄解決。在東南亞設廠碰到的困難主要

是海關出關時間拖延問題。從國內運去東南亞國家的零部件，出海關時不能及時提貨，

比如，在柬埔寨，到國內提貨時間大約只需兩三天，而在柬埔寨那邊的海關可能稍微

有一點小問題就延遲兩至三週。解決的辦法就是靠行賄。這個問題企業反映較為普遍，

廣州花都區的電視機外銷企業的調研中，也遇到同樣的問題。

第三，企業認為對當地法律瞭解不到位，當地法律不完善；越南等地從海關到地

方政府，「吃拿卡要、要回扣」等腐敗現象嚴重；

此外，外向型企業收匯在國內也受到一些制約，更願意經過香港收匯。香港手續

較為簡便。

（5）在參與「一帶一路」倡議過程中，內地大企業獲利較大，小微企業面臨風險

332 高，需要更多支持。內地大企業表示，在一帶一路市場上，外貿利潤可增加30%，更

願意走出去。但對於小微企業而言，企業缺乏必要的經營管理人才，缺少資金，對東

南亞、東盟、非洲市場文化、法律等營商環境不瞭解，不敢輕易決策。走出去發展，

更加需要得到政府、行業協會、專業服務的支持。

2.2 企業參與一帶一路過程中對政府及香港的需求

對內地政府的需求：

(1)設立展會，與香港聯手幫助企業在當地銷售或設廠經營。地方政府可與香港政

府部門聯合，在東歐、俄羅斯及東歐國家，組團或分行業考察、設立展會。例如，在

俄羅斯開展順德、中山造的產品展會，與國外當地政府或有關部門聯繫，幫助企業在

當地銷售或設廠經營。在東盟、東南亞、非洲一些國家市場，小企業品牌產品也有機

會成為當地的大品牌，只要產品適銷，受當地消費者歡迎；

(2)各级政府有关部门及國家有關中央部委可給予企業政策及制度上的支持。一是

由政府部門在一帶一路國家與當地有關部門接洽，為走出去的企業背書、提供政治支

撐；二是地方政府、國企可以東南亞地區建設產業園，提供一個較有安全保障的生產

園區；三是銀行金融機構與該園區合作，方便企業員工存匯款；四是國家有關部委、

省級政府有關部門能夠在人員出入境管理方面，便利一帶一路沿線國家人員的出入境，

比如非洲的企業員工來東莞母公司培訓，可以給予較長時間的簽證安排；五是與東道

國簽訂雙邊協議，在法律方面、安全方面加強對我國企業員工的保護；六是貨物、人

員海關出入境管制方面，特別是貨物出入關境方面提高便利水平；七是開展對東道國

人文文化、法律、會計規則、金融、營商環境等方面的培訓，讓企業更好地在當地發

展。

333

對香港專業服務的需求

(1)香港便利的國際化營商環境，對內地企業仍然具有吸引力。一些企業還是在香

港設立專事外貿、外匯等業務。

(2)小微企業認為香港專業服務、科技服務可以促進企業發展，但是還未形成足夠

的現實需求。小微企業對香港專業服務的認可度較高，但考慮到服務費較高，可能難

以承受，故較少與其聯繫。加之該類企業缺乏與香港相關機構有效的信息溝通渠道，

不知如何聯繫到有關機構、高校院所，進一步阻礙其與香港開展合作的可能。2018年

下半年在對中山市一些小微企業調研時、2019年8月28日在江門調研時，企業都提出了

成本與渠道方面的問題。專業服務正是香港專業服務的優勢所在，還可以更進一步拓

展小微企業方面的需求和加強聯繫。

(3)國企、大中型企業中走出去跨國經營的較多，對香港專業服務的需求較大，與

香港專業服務合作聯繫的較多。大中企業，特別是央企、省屬、市屬國企，有的本身

就在香港設有分支機構，有的購買了香港（或香港在內地設立的）專業服務機構的服

務。當問及信用評級服務時，大企業表示有一定需求，並且國內也有相應服務。若香

港能利用其在國際市場的信用和影響力做這個業務，將會得到國際市場的認可。

2.3 粵港澳大灣區建設中香港的作用及三地合作情況

前一部分論述了內地企業在「一帶一路」走出去的過程中存在的問題，以及對香

港專業服務的需求情況，總體看來，小微企業對於香港專業服務的需求較低，大中型

企業的需求較高且合作較多。另一方面，粵港澳大灣區作為推動「一帶一路」倡議重

要的橋頭堡，近幾年在推進粵港澳三地合作交流方面有所突破，推動香港、澳門的科

334 技、專業服務等在內地發展。本部分根據我們對中山、江門、珠海市、廣州、深圳、

肇慶等市區的調研(附件1-5)，特別是在江門、中山、珠海三地關於大灣區企業營商環

境情況與政府有關部門和當地企業的座談，結合本課題研究主題的調研，主要從粵港

澳大灣區建設角度，梳理港澳專業服務在內地所發揮的作用以及三地合作情况。

（1）粵港澳之間醫藥領域的合作聯繫正在加強。中山市與港澳高校在醫藥研發和

產業進行合作。2019年，中山市將健康醫藥產業作為重點發展的戰略性新興產業之一，

並在《中山市推進粵港澳大灣區建設實施方案》中提出，要創建國家生物醫藥科技國

際合作創新區、建設國際醫療小鎮，打造大灣區西翼國際醫療中心。為此，中山健康

產業與港澳高校和相關科研機構、企業的合作日益頻密。2018年1月，中山市與澳門在

粵澳合作聯席會議上簽署《關於共同創建國家生物醫藥科技創新區合作框架協議》，

提出打造粵澳深化合作創新示範基地及健康領域高層次國際交流合作平台、生物醫藥

研發集聚區、國際生物醫藥產業基地和國際一流的醫療科技服務集聚區等；2018年7月，

中山市與廣東藥科大學、香港大學共建的「廣東藥科大學——香港大學創新平台」正

式落戶與中山國家健康基地，這是廣東省內首家粵港高校合資的新型研發機構，香港

大學11個、廣東藥科大學6個生物醫藥技術成果轉移項目簽訂落戶意向；該年12月，香

港浸會大學前列腺癌早期診斷試劑盒項目落地中山市，計劃在中山國家健康基地建立

實驗室及研發中心；同時，中山市繼續推進中智藥業集團和澳門科技大學一系列產學

研合作，雙方依託「澳門科技大學中藥治療眼疾國家重點實驗室——中智藥業集團中

藥質量研究聯合實驗室」，聯合開展中藥質量標準相關項目研究，並共建實體科開發

公司，開展相關業務。（數據來源於政府有關資料）

（2）廣東省對於港澳科技、法律、專業服務方面的需求很強，與港澳的高校、科

研機構在科技方面進行了合作。例如，在珠海高新區雙創中心，有17個科技顧問來自

335 香港，在香港有設立機構，負責與香港的大學聯繫。主要合作領域在集成電路、軟件

服務等產業；珠海與澳門大學對接，在橫琴建設聯合實驗室，歐比特大數據研究中心。

此外，在珠海高新區，企業反映希望能與香港法律、高校和科研機構合作。尤其是企

業成長後，在法律、稅收和運輸方面有與港澳合作的需求。

（3）廣東省珠三角地區政府提供優惠政策吸引港澳年輕人內地就業、創業。據江

門市人社局資料，在江門就業、納稅、參保的港澳人員有5000人。其中，澳門在江門

創業工作的有3000人。居住證受理申請數量達到7200多個。在江門珠西創業谷中，有

40%的港澳青年創業者，初創企業超過100家。還有從事農業創業的青年，為此廣東一

家食品集團專門建設了大棚，免費給香港青年創業使用。

以珠海的鳳凰人才計劃為例，港澳實習生有3-6個月的實習補貼，本科生、碩士、

博士生每人每月補貼為：1000、1500、3000元,年齡放寬5歲。對於企業人才，有公有產

權房，可申請。在珠海高新區，有港澳籍工作人員1526人，有12家新型研發機構；港

澳人來珠海創業註冊公司，程序與內地人一樣。法人需要澳門法務出事一個公證書。

自然人有出入境記錄就可以。澳門居民可參加內地的養老保險，對澳政策放開。

（4）廣東省政府推動簡化審批程序，便利港澳專業人士在內地從業。當前珠海、

深圳等市已在港澳醫師來大灣區執業有關審批方面加大了改革力度，簡化審批手續，

落實承諾制，實行證照分離。短期來華行醫者，省衛健委將審批權限於2018年開始下

放委託給地市一級審批，以縮減審批流程。另外，醫師3年執業時間期滿後，可以再申

請延續3年。

（5）廣東省增強基本公共服務供給，為港澳人員及其子女提供同等待遇。比如，

在中山工作的港澳人員子女可按內地居民待遇入學。2019年上半學年，在中山共有

7279名港澳籍學生，分別在公立和私立學校就讀，義務制教育的學生，公私立學校各

336 一半。這些學生包括3類，一類是父母是中山的，子女入學都可解決，屬於雙非兒童；

一類是父母是港澳身份證的，其在中山工作、有住房的。這類較少，只佔10%；一類

是積分入戶的。2012年澳門籍子女，有學費津貼。

（6）粵港澳三地合作中仍存在制度壁壘的阻礙。第一，廣東與港澳合作中，科研

經費跨境合作障礙較多，雖然現在空間變大，但還未落實到區一級。第二，廣東與港

澳職業資格互認未能實現。廣東單方面認可港澳的資質證書，但港澳不認可。例如，

深圳2019年12月發佈的推進中國特色社會主義先行示範區建設行動方案中已經明確，

單方面認可港澳有關執業資格資質證書。另外，橫琴新區試點導遊資格證的互認。

3. 結論與政策建議

3.1 結論

（1）香港專業服務在一帶一路、粵港澳大灣區、深圳先行示範區建設中已經發揮

了並將繼續發揮重要作用。

（2）香港專業服務發揮作用的途徑可以聚焦本課題提出的幾個方面的專業服務，

即會計、法律、金融、會展、信貸評級服務等。依據之一是本課題組在廣東地區作的

大量調研。廣東是改革開放的先行區，廣東也是大陸的縮影。基於內地企業在走出去

發展中遭遇的困難及企業自身能力的不足之處，以及內地的產業結構及營商環境方面

存在的短板，廣東是製造業大省，珠三角地區是世界製造業基地，但生產性服務業發

展不足，制約了企業在一帶一路的跨國經營。而香港最大的產業優勢在於服務業，特

別是專業服務。因此，香港專業服務在一帶一路、粵港澳大灣區建設中能夠通過助力

內地企業更好地跨國經營而實現可持續發展。

337 （3）香港專業服務與珠三角企業可以互動、融合，在粵港澳大灣區建設中更好地

發展。香港的優勢在於金融等專業服務業，其服務對象就在於珠三角的製造業、服務

業等各類企業。生產性服務業是珠三角地區的短板，粵港澳大灣區具有內生的產業融

合發展的基礎和條件，一帶一路建設發展中也具有類似特徵，內地的企業跨國經營走

出去發展，需要香港的專業服務。香港的專業服務有助於推動珠三角地區、內地企業

的國際化、轉型升級發展，在這個過程中，香港的專業服務業也能得到可持續發展。

同時，也能夠刺激大灣區的營商環境與信用體系進一步完善。

（4）香港在大灣區建設中最為重要的作用是，將帶動全國的全面深化改革、擴大

開放，推動我國各領域的高質量發展。因為大灣區建設是要對標國際一流灣區，必須

轉向高質量發展的模式。高質量發展模式的建立，必須貫徹落實五大新發展理念、全

面深化改革、擴大開放。其中，香港的經濟社會治理經驗、香港的營商環境，都是大

灣區、內地學習的榜樣。廣東的改革發展、深圳的成功，比如始發於順德的商事登記

制度改革、當前的營商環境改革就是借鑒了香港的經驗。深圳的成功，服務型政府建

設、政府與市場的關係，就是學習借鑒了香港的經驗做法。

（5）廣東還需要加大改革力度，加快規則銜接，消除制度壁壘，推動大灣區建設。

廣東特別是珠三角地區與香港聯繫緊密，有良好的合作基礎和前提，但還存在多方面

的制度壁壘，營商環境還需要加快完善。必須深化改革，擴大開放，消除制約人流、

物流、資金流、信息流的制度性壁壘，加快向香港學習，構建完善的營商環境。

3.2 政策建議

（1）香港政府可以支持政府有關部門、商會、行業協會、企業等與內地的合作，

發揮香港專業服務優勢，助力內地企業在一帶一路沿線國家和地區發展。一方面，支

338 持香港青年到內地創業創新。比如，香港政府給在港創業者提供30萬元的雙創補助，

能否也給與來珠三角創業的香港青年同樣的補助？另一方面，能否接受「雙非」子女

在高中階段到香港讀書？這類情況在深圳、珠海、東莞都普遍存在。之前，廣東省教

育廳與香港有過溝通。這個問題是一個亟待解決的現實問題。此外，繼續加大力度，

支持香港專業服務參與到一帶一路、大灣區建設中。

（2）粵港澳三地政府加強溝通合作，促進要素資源在三地間便捷流動，促進營商

環境與港澳地區的有序銜接。從立法角度，通過法治、建立起社會信用體系，加快三

地在市場規則與法律體系方面有序對接，從而促進三地間人流、物流、資金流、信息

流等要素流動。在物流通關檢驗、通訊資費、電子支付與專業人員資格的政策互認方

面加快規則有序對接。大灣區有三個海關，調研中內地海關部門希望粵港澳三地海關

加強合作。在申報數據統一標準化方面、在數據互換、信息互換方面加強合作。因為

企業這方面需求很大，希望能夠簡化報關手續。但這需要國家層面統籌。建議三地政

府需要加強與國家有關部門溝通。在金融領域，加強三地的溝通合作，香港在金融領

域的治理機制和制度措施及金融服務機構管理、人才培育等方面，有很多值得廣東學

習和借鑒的地方。正如本課題組所建議的六大具體政策建議那樣，香港專業服務在一

帶一路、大灣區建設中可以提供商事糾紛協調、仲裁、信用評級、公證、行政裁決、

行政複議及訴訟方面可以為內地企業、商會、協會、政府有關部門提供專業服務。

（3）內地還需繼續深化「放管服」改革，不斷優化行政體制和治理模式，加快數

字政府建設，加強監管，加快建設社會信用體系。「放管服」改革為三地合作提供了

基礎和條件，港澳開辦企業更加便利化。但內地政府還應加強政務工作電子化應用，

便利化不足，部門之間信息孤單問題依然存在，系統之間對接不充分；商事登記制度

改革後，企業進入便利程度大大提升了，但政府的後續監管能力不足，專業知識不足。

339 廣東當前正在開展建立信用體系加強監管的改革創新，目前信用體系建設還未能全面

覆蓋，雙隨機監管措施，不能更好地加強信用體系建設。香港政府可以助推粵港澳之

間的交流，帮助廣東省主動研究和學習香港在信用體系建設方面的經驗，利用周密的

法律體系加大市民信用違約成本。香港的有關律所和監管機構可以進行實踐經驗的分

享。

340 4. 附件

附件 1

「一帶一路發展與香港專業服務作用」東莞調研提綱

您好！

我們是廣東省委黨校、深圳大學及香港城市大學研究「一帶一路發展與香港作用」問

題的課題組。東莞在實施「一帶一路」戰略中再領潮流。為更好更全面地瞭解東莞有

關進展、企業走出去過程中遇到的困難與挑戰以及對香港專業服務業的需求等，我們

開展本次調研，特向您請教下述問題：

一、與政府層面的座談調研提綱

1. 東莞如何看待和對待一帶一路戰略：東莞如何定位自己？比如，如何在一帶一

路中突出自己的優勢？如何在實施該戰略中協調東莞與廣東省及其他地市的關係？

2. 東莞關於「一帶一路」發展戰略的背景、戰略部署、現狀及面臨的挑戰；

3. 政府如何推動企業及有關各方參與並推進一帶一路發展戰略？

4. 東莞企業走出去發展的現狀、存在的困難與挑戰。

5. 石龍的中俄貿易產業園及東莞石龍鐵路國際物流中心建設發展的現況，遇到哪

些阻力？

6. 海博會對東莞的作用：一帶一路戰略的實施方面；對企業走出去的作用

7. 東莞的專業化組織（法律事務、會計師事務等）對企業提供的專業服務情況，

遇到的挑戰。

8. 東莞在實施一帶一路戰略、推動企業走出去方面，當前與香港政府及其專業服

341 務組織有哪些合作? 存在哪些更具體的需求？

二、對企業、行業協會、產業服務平台、研發機構等的調研提綱

1. 東莞政府哪些政策措施對企業走出去最具有扶持推動作用？你的期望是？

2. 請簡介您的企業走出去發展的情況，在走出去過程中遇到哪些阻力與挑戰？需

要政府、專業服務機構（法律、會計師事務所等）哪些支持與服務？

3. 行業協會在東莞一帶一路戰略實施及企業走出去中發揮的作用、遇到的難題與

挑戰。

4. 產業服務平台(生產力促進中心、產業技術創新服務平台等) 在東莞一帶一路戰

略實施中的作用、遇到的難題與挑戰。

5. （新型）研發機構在推動企業轉型升級發展、在東莞一帶一路戰略實施中的作

用、遇到的難題與挑戰。

6. 在專業升級、走出去發展中與香港服務業開展的合作；對香港服務業的需求。

附件 2

「一帶一路發展與香港作用」中山調研提綱

您好！

我們是廣東省委黨校、深圳大學及香港城市大學研究「一帶一路發展與香港作用」問

題的課題組。中山在參與「一帶一路」建設倡議中再領潮頭。為更好更全面地瞭解中

山有關進展、企業走出去過程中遇到的困難與挑戰以及對香港專業服務業的需求等，

我們開展本次調研，特向您請教下述問題：

一、與政府層面的座談調研提綱

342 1.中山如何看待和對待一帶一路倡議：中山如何定位自己？比如，如何在一帶一路中

突出自己的優勢？如何在實施該戰略中協調中山與周邊地區政府的合作關係和模式？

2.中山關於參與「一帶一路」建設的背景、戰略部署、現狀及面臨的挑戰；

3.政府如何推動企業及有關各方參與並推進一帶一路建設？

4.中山企業走出去發展的現狀、存在的困難與挑戰。

海博會對中山企業參與一帶一路建設的作用。

5. 中山的專業化組織（法律事務、會計師事務等）對企業提供的專業服務情況，

遇到的挑戰。

6. 在中山實施一帶一路建設、推動企業走出去方面，當前與香港政府及其專業服

務組織有哪些合作? 存在哪些更具體的需求？

二、對企業、行業協會、產業服務平台、研發機構等的調研提綱

1.請簡介您的企業現狀、走出去發展的情況，在走出去過程中遇到哪些阻力與挑戰？

需要政府、專業服務機構（法律、會計師事務所等）哪些支持與服務？

2.行業協會在中山參與一帶一路建設實施及企業走出去中發揮的作用、遇到的難題與

挑戰。

3.產業服務平台(生產力促進中心、產業技術創新服務平台等) 在中山參與一帶一路建設

中的作用、遇到的難題與挑戰。

4.（新型）研發機構在推動企業轉型升級發展、在中山一帶一路戰略實施中的作用、

遇到的難題與挑戰。

5.在專業升級、走出去發展中與香港服務業開展的合作；對香港服務業的需求。

6.中山政府哪些政策措施對企業走出去最具有扶持推動作用？你的期望是？

343 附件 3

「一帶一路發展與香港專業服務作用」企業訪談提綱

尊敬的先生/女士

您好！非常感謝您在百忙之中抽空填寫這份調查問卷。我們是廣東省委黨校、深

圳大學及香港城市大學研究「一帶一路發展與香港作用」問題的課題組。這是一份純

學術的調查問卷，主要是為瞭解企業在「一帶一路」走出去過程中遇到的機遇、問題

和挑戰。本問卷採用匿名的方式作答，您填寫的答案將不會披露給您本人以外的任何

個人和企業，您的答案僅作學術研究的分析之用，請您根據自己的實際情況回答。

甲. 你下是外界對於一帶一路的一些理解以及期望，你是否同意以下的陳述呢? 請在合

適方格內打「√」。

非常認同認同一半半不認同非常不認同不知道/難講

I. 你對一帶一路的主要目標理解是甚麼?

1. 輸出過剩產能 □ □ □ □ □ □

2. 抗衡美國重返亞太圍堵 □ □ □ □ □ □

3. 中國」走出去」政策延續 □ □ □ □ □ □

4. 建立共榮共享的經濟圈 □ □ □ □ □ □

5. 其他 (請註明):

II. 你對對一帶一路政策的期望是甚麼?

1. 應該更便利人員出入境簽證 □ □ □ □ □ □

2. 應該更便利貨品出入境通關 □ □ □ □ □ □

344 3. 應該更便利資本流出流入 □ □ □ □ □ □

4. 應該提供更多的稅務優惠 / 財務支持 □ □ □ □ □ □

5. 應該更完善法律保護機制 □ □ □ □ □ □

6. 應該提供更全面的風險擔保 □ □ □ □ □ □

7. 應該提供更多的海外培訓 □ □ □ □ □ □

8. 其他 (請註明):

乙. 一帶一路政策提出已經4年，以下哪些方面你覺得對企業是實際上已經帶來改變的

呢? 請在合適方格內打「√」

非常認同認同一半半不認同非常不認同不知道/難講

1. 已經便利了人員出入境 □ □ □ □ □ □

2. 已經便利了貨品出入境通關 □ □ □ □ □ □

3. 已經便利了資本流出流入 □ □ □ □ □ □

4. 已經提供更多的稅務優惠 / 財務支持 □ □ □ □ □ □

5. 已經令法律保護機制變得更完善 □ □ □ □ □ □

6. 已經提供了更全面的風險擔保 □ □ □ □ □ □

7. 已經提高了企業向外投資的慾望 □ □ □ □ □ □

8. 已經提供了更多的海外培訓 □ □ □ □ □ □

9. 其他 (請註明)

345 丙. 以下是一些中國企業走出去的原因以及困難，你是否同意以下的陳述呢? 請在合適

方格內打「√」。

非常認同認同一半半不認同非常不認同不知道/難講

I. 中國企業開拓海外市場的原因是甚麼?

1. 國內市場飽和 □ □ □ □ □ □

2. 經營成本上升 □ □ □ □ □ □

3. 找尋新增長點 □ □ □ □ □ □

4. 其他 (請註明)

II. 中國企業開拓海外市場遇到的困難是甚麼?

1. 缺少資金支持，融資難、融資貴 □ □ □ □ □ □

2. 人工、原材料等生產經營成本升高 □ □ □ □ □ □

3. 政府行政審批項目多，手續繁瑣 □ □ □ □ □ □

4. 海關報關、查驗方面問題 □ □ □ □ □ □

5. 當地行政效率低下 □ □ □ □ □ □

6. 海外經營管理人才不足 □ □ □ □ □ □

7. 產品競爭力不強 □ □ □ □ □ □

8. 目未被當地群眾接受 □ □ □ □ □ □

9. 對當地的法律規則不瞭解 □ □ □ □ □ □

10. 對當地會計事務規則不瞭解 □ □ □ □ □ □

11. 對當地文化習俗不瞭解 □ □ □ □ □ □

346 12. 當地政治局勢不穩定 □ □ □ □ □ □

13.其他 (請註明)

丁. 以下是外界認為香港專業服務可為中國企業走出去提供協助的範疇，你是否同意以

下的陳述呢? 請在合適方格內打「√」。

非常認同認同一半半不認同非常不認同不知道/難講

1. 會計服務 □ □ □ □ □ □

2. 法律服務 □ □ □ □ □ □

3. 金融服務 □ □ □ □ □ □

4. 會展服務 □ □ □ □ □ □

5. 信貸評級服務 □ □ □ □ □ □

6. 其他 (請註明)

戊. 您認為阻礙貴公司接受香港的專業服務的原因有哪些? (可選多項)

1. 對於香港專業服務情況不瞭解 □ □ □ □ □ □

2. 香港專業服務不能在海外投資中發揮作用 □ □ □ □ □ □

3. 香港的專業服務收費太高 □ □ □ □ □ □

4.文化差異，與香港公司溝通不暢 □ □ □ □ □ □

5. 其他 (請註明)

347

戌、背景資料，請在合適方格內打「/」。

1. 您所在的企業屬於 □ 國有企業 □ 民營企業 □ 其他(請注明) ____

2. 您所在企業在海外開展業務年限 □ 1年以下 □ 1-3年 □ 3—5年 □

5—10年

□ 10-15年 □ 15-20年 □ 20年以上

3. 您所在企業的海外投資規模 □ 50萬美元以下 □ 50萬—300萬美元 □ 300萬—

1500萬美元

□ 1500萬—5000萬美元 □ 5000萬—1億美元 □ 1億美元以上

4. 海外業務所佔企業整體業務額比重 □10%以下（剛起步） □ 10%-30% □

30%-50% □ 50%以上

5. 您所在企業在海外哪裡投資或有業務往來? □ 中亞5國 □ 東南亞 10 國

□ 南亞9國 □ 西亞16國

□ 北亞1國 □ 歐洲19國 □ 東北非6國

□ 其他(非一帶一路沿線國家或您不知道所屬區域).請寫出名稱______

6. 你所在企業在海外開展哪些項目?

(可選多於一項) □ 貨物貿易：與沿線國家企業進行直接的貨物進出口貿易

□ 科技研發：在沿線國家設立研發中心，或以海外收購形式獲得專利技術等

□ 生產製造：在沿線國家建立生產加工基地、原材料供應基地、組裝裝配基地等

□ 綜合服務：在沿線國家設立銷售、展示、倉儲、分撥、檢測、認證中心，開展高端

服務產業、專業服務產業等

348 □ 資源開發：參與沿線國家石油、天然氣、礦產勘探開發，以及承包、租賃土地，開

展農業合作等

□ 設施建設：承建沿線國家電力、公路、房屋、港口、園區等基礎設施建設項目

附件 4

順德區營商環境調查問卷

為了更好地改善順德區營商環境，提高法治化與國際化水平，為改善順德區營商環境

新政策的出台提供決策支持，特做此次調查。調查對象是在順德的中外企業。貴單位

的寶貴意見將對我們最終形成《順德區營商環境報告》起到重要的支撐作用。

謝謝您的配合！

請您在相應的選項編號上打√。

一、公司基本情況

（一）企業性質

A. 外資企業; B. 民營企業; C. 國有企業

（二）所屬行業

A.農、林、牧、漁業； B. 採礦業; C. 製造業; D.電力、燃氣及水的生產和供應業

E. 建築、房地產業; F. 社會服務（衛生、教育、文體、娛樂等）; G. 金融業

H. 商貿流通業; I. 住宿和餐飲業; J. 科技服務

（三）年營業收入（元人民幣）

349 A. 100萬以下; B. 100-1000萬; C. 1000萬-5000萬; D. 5000萬-1億;

E. 1億-5億; G. 5億以上

（四）員工人數（人）

A. 50以下; B. 50-200; C. 200-800; D. 800-1500; E. 1500-5000; F. 5000以上

（五）企業成立時間

A. 3年以下; B. 3-5年; C. 5-10年; D. 10-15年; E. 15-20年; F. 20年以上

二、對政務環境的評價

1、政府服務總體評價

A. 很好； B. 好； C. 一般； D.差； E. 很差

2、政策的透明度

A. 很好； B. 好； C. 一般； D.差； E. 很差

3、政策的穩定性、連續性

A. 很好； B. 好； C. 一般； D.差； E. 很差

4、政府部門的辦事效率

A. 很好； B. 好； C. 一般； D.差； E. 很差

5、公務員廉政表現

A. 很好； B. 好； C. 一般； D.差； E. 很差

6、政策的落實

A. 很好； B. 好； C. 一般； D.差； E. 很差

7、辦理有關審批手續時費用支出

A. 很低； B. 低； C. 合適； D. 高； E. 太高

350 8、您對政府部門辦事難易程度的看法

A. 很方便； B. 方便； C. 一般； D. 困難； E. 很困難

9、對政策信息的獲取

A. 很方便； B. 方便； C. 一般； D. 困難； E. 很困難

10、對相關事項辦理手續的看法：

事項很便捷便捷一般複雜很複雜

土地手續

環保手續

規劃手續

建設手續

消防手續

項目投資手續

外資企業設立手續

工商登記手續

外匯管理手續

海關進出口手續

檢驗檢疫手續

三、對市場環境的評價

11、對外開放程度

A. 很開放； B. 比較開放； C. 一般； D. 封閉； E. 非常封閉

12、市場准入難易程度

351 A. 很容易； B. 容易； C. 一般； D. 困難； E. 很困難

13、市場監管和服務