Hong Kong’s Role in Furthering China – India Engagement

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Sabita Prakash looks back into history and suggests how Hong Kong can remain relevant in the expanding Sino-Indian ties.

(Government image: CY Leung (right) greeting Indian Minister of Finance Arun Jaitley (middle) with the accompany of former Indian Consul General to Hong Kong Prashant Agrawal during Leung’s visit to New Delhi last February.)

The last two decades has seen the opening of Asian economies to the West via exports, particularly China, which has experienced multi-fold GDP growth of 8-10% annually as a result. In recent years, the “Make in India” policies launched by India’s Modi government is seeking to achieve similar results. However, with increasingly inward-looking policies in the West, and the simultaneous unshackling of domestic growth and consumption within Asia, the next few years may well be the period of “from Asia, for Asia”. As two of the fastest growing, largest, and youngest economies in the region, India and China have the socio-economic demographic and political resolve to be at the forefront of this trend.

While tiny in comparison, Hong Kong has all the infrastructure, systems, and financial capacity to convert the seeming competition between the two nations into collaboration for mutual engagement and progress.


History of China – India Engagement

The concept of economic collaboration between China and India is not new. Indeed, as part of the ancient Silk Road network, the two countries benefited from thriving commerce, educational and cultural exchanges from several centuries ago. The first large and more formally coordinated Chinese trade mission reportedly visited India across the seas to the port of Cochin (retracing part of China’s “One Belt, One Road” routes) as early as the 15th century. Such initial engagements were overshadowed by the more active European expeditions that subsequently visited India. It was only in the 19th century that the Colonial India and Chinese empire next came face but unfortunately in antagonistic circumstances culminating in the Opium Wars. Interesting is Hong Kong’s strategic role in this period, being ultimately ceded by China to Britain in the Treaty of Nanjing in 1842. Subsequently, the closest that Indians came to trading with China was the trading and other services businesses set up by Indian businessmen in Hong Kong, which came to be a busy trading and services hub in Asia in the mid to late 20th century. It is only in the last 5-7 years that trade links between the two economies have gradually increased, mainly on the back of their changed economic model from being socially driven to a more capitalist market economy.


Why should Hong Kong care?

Hong Kong occupies a unique position in this cross-country trade, with respect to its history, geography, rule of law, financial prowess, and ease of doing business. First, its history as the fulcrum of engagement between India and China, albeit with different ruling regimes then vs. now, gives it a starting edge. Second, Hong Kong has positioned itself as Asia’s world city, and so, could try to be a facilitator of intra-regional partnership. Third, over the last ten years, Hong Kong’s economic fortunes have become very closely linked to that of China. Given its developed market advantages, Hong Kong can capitalise upon the growth in Indian economy to offset the slowdown in China. Fourth, the return of Hong Kong to China should strengthen the confidence of the Indian business community to do business in China, given that they have thrived in Hong Kong for over 100 years. While China has been India’s largest trading partner over the last few years, Hong Kong and particularly the Indian community in Hong Kong could work towards increasing India’s representation in the Chinese economy. The side benefit could be that economic trade rejuvenation between China and India may help overcome political sensitivities associated with border disputes. Similarly, Hong Kong’s head start in promoting India-China economic partnerships may have the added benefit is that it could in turn rejuvenate the Hong Kong-Chinese political relationship.


What can Hong Kong do?

Whatever approaches that Hong Kong may choose to facilitate the China-India trade, keeping it simple and targeting areas of cooperation in which both countries have strategic priorities is important to ensure quick wins and the build-up of strategic momentum. One such example could be the facilitation and promotion of investment strategies that allows India and China to achieve the United Nations’ Sustainable Development Goals (SDGs)1 in sectors like technology, healthcare, education, or environment (renewable energy, water and sanitation among others) through public private partnerships. For instance, India has made substantial advances in higher education (IT services for example) and can export the model to China, while China can export its skills and experience in scale-based manufacturing to India in sectors like solar and other renewable energy production.

In such a partnership, Hong Kong is the natural domicile of choice in setting up Special Purpose Vehicles (SPVs) that could be used to route funding for cross border expansions or acquisitions in these sectors. This concept could be taken a step further by setting up Hong Kong based funds to make impact investments in these two countries. Public private partnerships involving the financial community (multilateral development banks and asset managers) can set up financing mechanisms to fund cross border acquisitions/distribution platforms/ technology. Hong Kong asset managers have deep pockets, and multilateral institutions’ key goals are to finance sustainable development – so, a win-win for everyone.

Another area of potential collaboration is that of restructuring Non-Performing Assets (NPAs). India has made good progress in recognising the level of NPAs which various investment banks have estimated to be at around 11.5% of total assets (vs. only 1.7% in China), and is now prioritising the restructuring of bad debt. Indeed, it is likely that up to a quarter of the banking system’s NPAs will likely be put under the Insolvency and Bankruptcy Code. On the other hand, notwithstanding the low NPA recognition, China has made good progress in setting up large asset management companies that have the financial wherewithal to buy up NPAs. Potential interest in commerce of this nature naturally fits in with Hong Kong’s reputation for international banking, trade and commerce, and could potentially be routed through Hong Kong entities.

The key advantages that Hong Kong brings to the table in such situations are as follows:

  • Rule of law in Hong Kong is conducive to setting up China-India partnership vehicles in Hong Kong; the high levels of governance in Hong Kong also sets high standards that Indian and Chinese companies can emulate.
  • Ease of setting up companies (and more importantly, dissolving companies and strong creditor protection) makes such SPVs easier to set up in Hong Kong.
  • Most Asian banking and financial systems are still rather local in their focus and so cannot easily support cross border financing. Hong Kong’s international banks and deep pocketed fund management industry can easily finance such transactions.
  • The SDGs must be implemented with high standards relating to “Environment, Social and Governance (ESG)” parameters. Hong Kong’s backdrop as a developed market that follows the rule of law can provide reassurance on this aspect.
  • Over 60% of Indians in Hong Kong are professionals or managerial staff2. Good way to use Indian ethnic minority’s experience and talents in Hong Kong.


Role played by government

China’s ambitious “One Belt One Road” or “the new Silk Road” aims to create the world’s largest platform for economic cooperation between China and rest of the world. Hong Kong can be considered as a part of the 21st century maritime silk road, so it is strategically located to benefit from “One Belt One Road” policies. Hong Kong’s government and various regulatory bodies must provide a proactive and supportive policy and regulatory environment to make this endeavour a success.  

Several direct and indirect measures that could be taken include: 1) publicising and actively prioritising this agenda, and welcoming potential participants including for example, the ethnic Indian minority to help in furthering these partnerships 2) considering tax advantages or other funding support for SDG funds 3) ensuring public-private-political traction – setting up a “Centre of Government” type body that is a cross ministerial initiative to ensure the idea doesn’t get boxed in or too narrowly defined 4) sharing lessons across countries in how to make such inter regional seminars work 5) Hosting multi stakeholder level dialogues to ideate and formulate active strategies for achieving the plan.



Hong Kong has both historical and geographical significance in any commercial relationship between India and China. We are at a unique moment in both countries’ development that puts Hong Kong in a prime position to benefit from the size, scale, and development of one country while investing in the growth and sustainable development of the other. The task admittedly is monumental, requiring that several private and public agencies come together, including the government and regulators on one hand providing a supportive policy environment, and funding bodies and multilateral development banks on the other who can migrate across borders in making such projects a reality. Nonetheless, if we do indeed manage to set aside our differences and come together in translating this vision into reality, Hong Kong could well spark a secular economic growth trend that we will all be proud to say is fully made in Asia, by Asia, and for Asia.  



1. SDGs are 17 goals that 193 countries including India and China have agreed to implement by 2030 via a non-binding agreement signed in 2015. These goals cover a broad range of sustainable development issues, including ending poverty and hunger, improving health and education, making cities more sustainable, combating climate change, and protecting oceans and forests. These matters are now receiving global attention as critical issues to resolve, both in the public and private sectors.

2. 2011 Population Census Thematic Report: Ethnic Minorities Census and Statistics Department, Hong Kong Special Administrative Region


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Sabita Prakash

Sabita is a Director, Head of Business Development, Investor Relations and Marketing of funds managed or advised by ADM Capital Foundation. She is also a candidate of the Diversity List 2016.