In commerce, few things matter as much as connections, and China’s plans to improve links within Asia and with other regions have the potential to be transformative for economies and businesses alike. Less clear is when that potential will become a reality—and how the transformation will affect Hong Kong specifically.

China’s ambitions have found their fullest expression in the One Belt, One Road (OBOR) initiative, which combines the Silk Road Economic Belt, a modern iteration of the ancient trade routes linking Asia and Europe, and the 21st Century Maritime Silk Road, a network connecting China’s coastal cities to key ports in South Asia, the Middle East and Africa. The initiative envisions improved road, rail and port infrastructure as well as policies to reduce trade barriers and integrate economies along multiple key “corridors”, such as China-Mongolia-Russia and China-Central Asia-West Asia. The plan will be supported by a dedicated US$40bn fund and investment by institutions like the recently established Asian Infrastructure Investment Bank (AIIB).

Beijing is simultaneously pursuing more localised economic integration initiatives that play a complimentary or contributing role in this framework. These include China’s free trade agreement (FTA) with the Association of Southeast Asian Nations (ASEAN), and the Guangdong Free Trade Zone (FTZ), designed to cement ties among the cities of the Pearl River Delta, including Guangzhou, Shenzhen, Macau and Hong Kong. A highly developed Pearl River Delta, boasting seamless transport infrastructure, cross-border financial services and free-flowing investment, is crucial to the area’s emergence as a nexus of the new Maritime Silk Road route.

In many respects, the integration trend promises substantial opportunities for Hong Kong firms. Already entitled to preferential access to China under the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA), Hong Kong companies should be in prime position to leverage the additional advantages offered by the Guangdong FTZ, which opens up additional service sectors to investment, seeks to promote the development of cross-boundary renminbi financing and settlement, and includes experiments with Hong Kong-based legal and arbitration mechanisms. The FTZ seems poised to evolve into a natural base for Hong Kong firms looking to capitalise on the associated growth as OBOR takes shape. Further afield, given their experience and expertise, Hong Kong firms should be able to play an active role in areas like infrastructure and financing as largely untapped markets such as those in Central Asia are incorporated into the regional economic network.

But trade experts caution that these opportunities have to be put in perspective. David Dodwell, executive director of the Hong Kong-Asia Pacific Economic Cooperation (APEC) Trade Policy Group, which represents the views of Hong Kong business in regional policy discussions, says the business benefits of One Belt, One Road are likely to be “incremental” in the short term, especially given the limited size of the frontier markets it is set to bring into the regional fold.

In his view, OBOR is best understood as a set of policies that “articulate China’s view of itself and its role in the world.” Plans for improved logistics infrastructure and trade facilitation have a clear economic component, but the initiative will require involved diplomacy and buy-in from regional governments. In its initial stages, at least, this will require delicate negotiations over sensitive local infrastructure, and decisions on which investments to make are likely to be driven by policy and diplomatic needs rather than strict commercial considerations. Consequently, financing, construction and other activity is likely to be primarily policy-driven in OBOR’s initial stages, with many contracts likely to go to state-run companies or affiliates, with only limited participation from the private sector.

Over the longer term, though, a deeply connected region through which business and investment flows smoothly is an enticing prospect for businesses. “The Chinese government, to its credit, is doing a lot of planning that's a hundred years out,” Mr Dodwell says. “[OBOR] is a 100-year plan.”

Regional interconnectivity will depend largely on the development of existing bilateral relationships—China-Russia, China-ASEAN and China-Europe being three primary examples. Importantly for Hong Kong, the flurry of diplomatic, policy and promotional activity that has accompanied the creation of OBOR and the AIIB has served as an important reminder of the necessity of engaging with the wider region rather than exclusively with the Mainland, where many Hong Kong firms naturally tend to concentrate planning and investment. Hong Kong’s efforts to negotiate its own FTA with ASEAN are one example of a “correction that is necessary in terms of orienting the economy towards a previously neglected region, and in line with what the Chinese government is doing with One Belt, One Road,” Mr Dodwell says.  

This regional mindset is important because Hong Kong has much to gain as Chinese and other companies along Asia’s emerging trade corridors seek a platform to engage the wider world. As integration progresses, more and more Mainland and other companies are likely to build their global operations from Hong Kong “because of the value of headquarters services Hong Kong offers,” Mr Dodwell explains. Beyond the city’s low tax regime and transparent legal environment, these “HQ services” include a deep pool of financial, logistics, advisory and accounting companies that are likely to see a steady supply of new clientele.

China is going all out to groom similarly business-friendly environments in areas like the Guangdong FTZ. However, lacking the requisite history and human capital, these places are unlikely to eclipse Hong Kong’s role in the short term, says Mr Dodwell. “Senior executives in Hong Kong have built careers on international intermediation business activity; the key value-add is their knowledge of global markets. In Asia there are only two cities that can claim that; Hong Kong and Singapore.”

The greatest potential of OBOR for Hong Kong firms may therefore not lie in the markets it opens up abroad, but in supporting the city’s status as a global gateway to and from an ever-expanding, more connected and more prosperous hinterland. “It’s the perfect non zero-sum game,” Mr Dodwell says. Cementing Hong Kong’s status as a hub for headquarters services “capitalises on the unique competitive advantages that Hong Kong has, while not in any way diminishing the importance of what’s happening on the Mainland.”